The global effects of the COVID-19 pandemic compound with the domestic ones and those of drought. Consequently, Morocco¡¯s economy is expected to suffer from a recession this year, the first one since more than two decades. The twin deficits will deteriorate, increasing significantly financing gaps. Demands for external financing have increased, which also underly the imperative of consolidating foreign reserves. Both central government¡¯s and external debt will increase but will remain sustainable. The outlook remains subject to significant downside risks, including from more severe and longer duration of the pandemic.
With the recent COVID-19 spreading in Europe, and the beginning of the infection domestically, along with an acute drought, Morocco¡¯s economy has started to suffer from the negative impact of the pandemic. As a result, real GDP is expected to recede by 1.7% in 2020. Over the medium term, assuming a V-recovery pattern from the COVID-19 impact, growth is projected to recover starting in 2021 reaching 5.5% as output returns to the levels projected before the pandemic outbreak. Inflation is projected to contract by 0.7% in 2020 as a result of the demand shock and contraction in private consumption.
The outlook remains tightly linked to the fast-changing nature of the pandemic, the responses of policymakers and the global economy. On the demand side, Morocco will suffer greatly from the expected recession of Europe¡¯s economy. It will also suffer if domestic demand drops further due to the closure of many activities to contain the spread of the pandemic with its impact on the revenues of employees and businesses. On the supply side, Morocco has started to be hit by the disruption in the value chains it is part of. However, the newly created COVID-19 fund in addition to the monetary measures, could well avoid the bankruptcy of a good number of companies and save jobs.