With the double domestic and external shocks stemming from the COVID-19 shock, the economy is projected to face a deep recession, its first recession since 1995. Fiscal consolidation paused given the pressures on expenditures and down-turn in economic activity. The decrease in remittances, tourism and FDI along with the significant drop of exports are adversely impacting the external position.
With a far longer period of disruption, economic output contracted significantly by 13.8% in Q2-2020 compared to a 0.1% increase in Q1-2020. On the supply side, manufacturing industries declined significantly, by 6% in H1-2020, and the services sector also dropped significantly, by 5% in H1-2020, thus dragging down non-agricultural growth to -6.8% in H1-2020. The central bank cut its policy rate by 75 bp to 1.5% and increased bank refinancing from 5% to 11% of GDP. Meanwhile, the unemployment rate worsened from 8.1% to 12.3 % in H1-2020.
Real GDP is projected to contract by 6.3% in 2020, primarily due to the COVID-19 pandemic, but also due to poor rainfall conditions. On the demand side, except public consumption, all components of aggregate demand are expected to significantly decline. Over the medium-term, the economic recovery will likely be a protracted one as agricultural output recovers to its historical growth rate while non-agricultural output slowly picks up as economic activity gradually restarts. Morocco plans the creation of a Strategic Investment Fund (4% of GDP) as a public limited company to support recovery financing in the short-run and infrastructure financing in the medium to long run.