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Morocco Country Risk Report Q2 2016

Morocco Country Risk Report Q2 2016

Core Views

Despite not possessing hydrocarbon wealth, the economy will remaina relative outperformer in North Africa over the medium term.

Investor interest in the country as an export-oriented manufacturinghub for the European market and increasingly to West Africa, aswell as relative security compared to the rest of the MENA region,will bode well for Morocco's underlying growth momentum in thenext few years. The all-important agricultural sector will neverthelessremain exposed to weather, resulting in significant volatilityin headline growth.

Morocco's foreign policy will remain stable over the coming years,aimed at strengthening its relationship with the EU and the GCCand looking to West Africa for trade and investment opportunities.

The Western Sahara issue will remain at the forefront of Rabat'sforeign policy agenda, and we do not see any significant progresstaking place on this issue in the near future.

Morocco will underperform in North Africa in 2016, on the back ofa lower-than-average harvest, which will significantly impact headlinegrowth directly and indirectly through private consumption. Wenevertheless maintain a positive outlook for improvements in theexternal sector, as the country will continue to attract a lot of interestfrom foreign investors. We forecast real GDP growth to reach 2.0%in 2016, well below the 4.4% estimated for 2015.

The gradual coming on-stream of new energy sources over the nextfive years – as part of the National Energy Plan 2020 – will reducepressures on Morocco's current account and boost the country'sattractiveness for foreign investors. This structural evolution willbenefit the country's economic growth over the next decade.

Average annual inflation in Morocco will remain close to 1.6% over2016, similarly to 2015, as rising food prices from a lower-thanexpectedharvest are compensated by a decrease in householddemand. This will allow the central bank to maintain its currentbenchmark interest rate at 2.75% throughout the year.


Executive Summary
Core Views
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Poor Harvest Worsening Growth Outlook
Morocco's economic growth will slow down significantly over 2016, as agricultural production collapses on the back of a drought. On the
upside, exports will continue to outperform, and investment will remain elevated, as the country pushes forward with its plan to become
a regional exporting hub between Europe and Africa. As a result, we forecast growth to reach only 2.0% over 2016, compared to 4.4
%in 2015.
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Fiscal Policy And Public Debt Outlook
Pension Reform Another Sign Of Market-Friendly Orientation
The pension reform initiated by the Moroccan government is a positive step towards long-term fiscal consolidation, and runs in line with
the government's market-friendly economic orientation. With strong opposition from the country's main unions, the incumbent coalition is
set to lose some support in the run-up to the 2016 parliamentary elections, but will remain favourite for the upcoming ballot.
TABLE: MAIN REFORMS TO THE PENSION SYSTEM
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
External Trade And Investment Outlook
Exports To Continue Outperforming
Morocco's current account deficit will continue to narrow over 2016, albeit at a slower pace than in 2015, given that rapid improvements
in the import bill will come to an end as global oil prices stabilise. On the upside, exports will continue to outperform over the coming
months, driven by the autos and phosphate industries.
TABLE: SELECTED AUTOS AND AERONAUTICS PROJECTS ANNOUNCED IN 2015
Outlook On External Position
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
TABLE: BREAKDOWN OF IMPORTS IN 2014
TABLE: BREAKDOWN OF EXPORTS IN 2014
Monetary Policy
Inflation Picking Up From H216
Moroccan annual inflation will remain subdued in H116, due to further weakness in global oil prices and record-high cereal stocks
keeping Moroccan food prices low. This will last until H216, when rising global oil prices and lowering wheat stocks support CPI
acceleration. As a result, we forecast annual inflation to reach 2.0% by the end of 2016, compared to 0.6% at the end of 2015.
Monetary Policy Framework
Chapter 2: 10-Year Forecast
The Moroccan Economy To 2025
Diversified Economic Base Underpins Bright Future
We point to an increasingly diversified economic base, an attractive geographical position, and strong investments in tourism and
energy infrastructure as major positives underpinning Morocco's long-term growth trajectory. Nevertheless, we caution that several
issues, such as persistently high unemployment and poverty combined with shortcomings in the quality of education, if not addressed
properly, could pose serious threats to our positive long-term view.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Spat With EU Will Not Last
The diplomatic crisis between Morocco and the European Union related to the Western Sahara will subside rapidly, as both parties
will overlook the issue to work towards deeper political and economic cooperation. As a result, Morocco will continue to increase its
diplomatic importance in the MENA region, and remain a central ally for the EU.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Challenges For The Coming Decade, Scenarios For Change
The ongoing political and economic reforms undertaken by the government in recent years underpin our view that Morocco possesses
one of the most stable political climates in the region. However, high economic disparities in the country and rising corruption could lead
to social unrest of the type that spread across the Arab world in 2011. In addition, the lure of radical militancy will continue to appear
as a way out for young people, as the significant number of Moroccan nationals fighting with radical jihadist group IS in Iraq and Syria
attests.
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: OPERATIONAL RISK SCORES
Trade Procedures And Governance
TABLE: MIDDLE EAST AND NORTH AFRICA – TRADE PROCEDURES AND GOVERNANCE RISK
TABLE: EXPORT AND IMPORT DOCUMENTS
TABLE: TRADE PROCEDURES BREAKDOWN
Vulnerability To Crime
Chapter 5: BMI Global Macro Outlook
Global Macro Outlook
Downside Risks Gather Momentum
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: MACROECONOMIC DATA & FORECASTS

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