Morocco: Economic Growth Cooled Markedly in 2005

According to preliminary data released by the Haut Commissariat au Plan (the national forecasting office), the Moroccan economy achieved an expansion rate of 1.5% in 2005, down from 4.2% in 2004, with fourth-quarter growth at a meager 1.2% year-on-year (y/y). Last year's slowdown was the result of continued contractions in the agriculture and fishery sector. Output in this sector dropped 17.9% in 2005, largely because of inadequate rainfalls. As a result, the production of cereals is estimated to have plummeted more than 50% last year, while vegetable production was down an estimated 20%.

Outside of agriculture, though, most sectors boosted their output. The energy sector saw the largest increase—15.3% in 2005, up from 11.2% the previous year. After slowing down in the third quarter, production gains accelerated in the fourth quarter, benefiting from an increase in energy demand, despite high world oil prices. During the first 10 months of 2005, electricity sales to households rose by 13.7%, while those to businesses rose by 6.9%. The higher sales can be partly explained by greater electricity production and demand in rural areas.

Meanwhile, mining output grew 6.4% in 2005, down from its 9.5% gain in 2004. After easing in the first quarter, production in this sector rebounded in the second and third quarters, before contracting in the fourth. The robust second- and third-quarter growth can be attributed to the increased production and sales of phosphates in both local and world markets. Indeed, phosphates output expanded 11.5% y/y during the first seven months of 2005. Phosphate exports to the United States jumped 21.9% in 2005, since U.S. phosphate production was crippled by Hurricane Katrina (the estimated U.S. production loss was 380,000 tonnes between September and November). The fourth-quarter drop can be traced to weakening demand for fertilizers by China and Brazil, the two largest importers of fertilizers.

On the other hand, activity in the service sector grew 2.3% in 2005, picking up from its 1.7% gain in 2004 because of a continued rebound in tourism. The number of tourist arrivals in 2005 stood at 5.8 million, a 7% advance from the 2004 level. Leading the pack, French visitors accounted for almost 23% of the total, followed by Spanish and British arrivals. The number of British tourists jumped 29% in 2005, with gains of 16% for the Spanish and 15% for the French. Moreover, the number of nights spent by tourists rose 16% last year. All of this led to tourism revenues climbing 18% in 2005, to 41.1 billion dirhams (US$4.6 billion).

Output in the transport and communication sector expanded by 7.1% in 2005, after 4.8% growth in 2004. This sector has benefited greatly from recent increases in railroad, maritime, and airline activities. Moreover, car registrations jumped 14.3% over the first 10 months of 2005.

In addition, the construction and public works sector grew 5.9% in 2005, while public administration activity was up 5.1%. Finally, output growth in the manufacturing sector slowed from 3.0% in 2004 to 2.6% a year later, as a result of problems in the textile sector. After the expiry of the Multi-Fiber Agreement on 1 January 2005, the textile sector faced stiffer competition from China, India, and Turkey, all of which have comparative cost advantages over Moroccan textiles.

Morocco's economic growth has been extremely volatile in recent years, mostly because of its dependence on an agricultural sector that is itself dependent on the vagaries of weather. Moreover, growth has been insufficient to substantially reduce poverty and unemployment. Although GDP has averaged 3% annual gains over the past decade, the economy needs to expand at least 6% annually to absorb the estimated 200,000 new entrants to the labour market each year. To this end, structural reforms should be accelerated in the context of macroeconomic stability and fiscal consolidation.