Fitch Ratings adjusts Morocco's economic growth downwards

Fitch Ratings lowered Morocco’s economic growth forecast for the current year from 3.4 percent previously to 1.8 percent, given the acceleration of inflation, a tightening of monetary policy, and climactic damage to the agricultural sector.

The agency said  in a report that agricultural production will weigh more on economic growth than was previously expected, as happened in the fourth quarter of last year, when agricultural production contracted by 15.1 percent due to drought, while the non-agricultural sector slowed down to 2.4 percent.

The agency’s figures indicate that the weakness in the non-farm sector was mainly driven by a combination of inflationary pressures and monetary tightening, which affected consumption and investment. Modest agricultural production and a sharp slowdown in growth in the eurozone will also affect Morocco’s exports, according to Fitch.

The month of March witnessed a weak rainfall, the agency says, and therefore the economy will be affected, given the country’s heavy dependence on fallow agriculture. In addition, the increase in input prices and the poor filling of water dams caused a decrease in the cultivated area. The agency indicated that Morocco will increase its imports of agricultural and food products during the current year.

Regarding the main interest rate, the agency highlighted that the series of raising will continue, which will result in a restriction of the growth of borrowing and investment, as it is expected that the rate will reach 4.5 percent by the end of the year, compared to 4 percent previously expected, and this change is due to the significant increase in the interest rate. Inflation at the beginning of the year.

The main interest rate currently approved is 3 percent, and Bank Al-Maghrib has resorted to raising it three times in a row since last September with the aim of curbing the rate of inflation that continues to record records, the last of which was 10.1 percent recorded at the end of February.

Regarding the eurozone, Fitch stated that it will witness a sharp slowdown in growth from 3.5 percent in 2022 to 0.4 percent this year, which will affect Morocco’s exports, given that more than two-thirds of these exports are directed to the old continent.

The agency said that the acceleration of inflation since the beginning of the year, the slowdown in growth in the agricultural sector, which employs more than a quarter of the labor force, and the high unemployment rates are factors that will greatly affect household consumption during the current year.

And “Fitch” raised inflation expectations in Morocco for the current year from 5 to 7.8 percent, which will further restrict the purchasing power of households, compared to 6.6 percent as an average last year, and that was the highest level in four decades.