New Market Study Published: North Africa Business Forecast Report Q1 2014

Despite not possessing hydrocarbon wealth, the economy will remain a relative outperformer in North Africa over the medium term. Investor interest in the country as an export-oriented manufacturing hub for the European market, coupled with a burgeoning tourism industry, should bode well for Morocco's underlying growth momentum in the next few years.

We expect the Moroccan economy to experience weak growth throughout 2014, after having reaped the benefits of an agriculture-based recovery in 2013. The near-term outlook for non-agricultural economic activity remains weak, with subdued prospects for private consumption in particular. We have revised down our 2014 real GDP growth forecast to 2.8%, from 3.0% previously.

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The Moroccan government has implemented a fuel price indexa -tion system, which aims to reduce the budgetary cost of future oil subsidies. We have made a number of revisions to our consumer price inflation and fiscal and current account forecasts, and now see largely downside risk to our 2014 real GDP growth outlook. We do not expect the government to backtrack on subsidy reform, despite popular anger against the move.

We forecast Morocco's current account deficit to narrow to 7.3% of GDP in 2013 and 6.0% in 2014, down from a record 10.0% in 2012. We expect only modest improvements to the trade account in the near term, driven largely by lower fuel imports. That said, we maintain our positive long-term view of Morocco's export growth prospects, and note that diversification and intrinsic advantages should ensure continued increases to competitiveness over the coming years.

Key risks to outlook

Our forecasts for both economic activity and fiscal policy assume that Morocco will benefit from significant inflows of foreign aid from the Gulf Cooperation Council (GCC) and other organisations in 2014. Should this assistance fail to materialise, it would pose serious downside risks to the country's outlook.

The export sector remains highly vulnerable to any escalation of the ongoing eurozone sovereign debt crisis, and a sharper-than-anticipated recession in the eurozone would force us to make significant downward revisions to our growth forecast.

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