But Economic Growth expected to accelerate to 3.1% in 2023
RABAT, February 14, 2023 – After a strong post-COVID-19 rebound last year, Morocco’s economy came under mounting pressure from overlapping supply shocks: a severe drought and a surge in commodity prices that have fed inflation, according to the World Bank’s latest report "Responding to Supply Shocks".
Nonetheless, Morocco’s economic growth is expected to accelerate to 3.1% in 2023, thanks to a rebound of the primary sector. Still, downside risks persist due to geopolitical tensions, including the war in Ukraine, the deceleration of Morocco’s main trading partners in the Eurozone, and new potential climate shocks. The report says real GDP growth dropped from 7.9% in 2021 to an estimated 1.2% in 2022, while the current account deficit increased from 2.3% to 4.1% of GDP.
The war in Ukraine, combined with the reordering of global supply chains, have triggered, as in much of the world, a surge in prices, with Moroccan annual inflation peaking at 8.3% towards the end of 2022.
To soften the impact of food and energy prices on households, Morocco adopted a policy package that included general subsidies on staples and maintained pre-existing regulated prices. This approach stabilized the prices of goods and services that absorb almost one-quarter of the average household´s expenditures, avoiding what could have been a higher increase in poverty. It required the mobilization of additional public spending amounting to almost 2% of GDP.
Notwithstanding these measures, modest and vulnerable households still suffered the most from the impact of rising food and other prices due to inflation. The report calculates that annual inflation was almost one-third higher for the poorest 10% of the population, compared to the wealthiest 10% of the population primarily due to the impact of food price increases which represent a higher share of spending in poorer households.
The report also states that the Kingdom’s planned major social safety net reform will allow for an effective targeting of subsidies to support the poor and vulnerable.
"Recent measures to counter supply shocks and preserve the purchasing power of Moroccan households have cushioned the impact to a significant extent and prevented more people from falling into poverty," said Jesko Hentschel, World Bank Maghreb and Malta Country Director. "The planned roll-out of the family allowance system will allow Morocco to effectively target the vulnerable population in a cost-effective and equitable manner to address price hikes of this magnitude."
The report notes that Morocco’s Central Bank has taken a prudent approach to the current economic situation, raising interest rates twice since September 2022 by a cumulative 100 basis points. Going forward, the report says Morocco’s optimal monetary policy response would depend on the persistence of price pressures and the evolution of inflation expectations. In such a complex setting, the authorities could consider complementing anti-inflationary measures by introducing structural policies to ease supply constraints. These measures could include steps or actions to address bottlenecks in food markets, where there is a substantial divergence between farmgate and retail prices not always justified by the value added along the supply chain.