ECONOMIC GROWTH WEAKENS AS CRISIS' IMPACT HITS HOME

UNCLAS RABAT 000447

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD MO
SUBJECT: ECONOMIC GROWTH WEAKENS AS CRISIS' IMPACT HITS HOME

REF: A. RABAT 171

B. CASABLANCA 014

C. RABAT 284

D. 08 RABAT 893

E. 08 RABAT 853

F. 08 RABAT 254


1. (U) Summary: While official GDP growth projections remain
near 5 percent for 2009, thanks to this year's bumper
agricultural harvest, the outlook for non-agricultural
sectors appears increasingly somber as a result of the world
economic downturn. Growth outside agriculture was only 1.3
percent in the first quarter, its lowest level since 2002.
All sectors have been affected, from industry to services,
construction, and tourism. Adding to the gloom, the Caisse
Nationale de Securite Social (CNSS) reported on June 1 that
nearly 20,000 jobs were lost in April, bringing the total for
the year in the formal economy to nearly 43,000. The
Moroccan government's Surveillance Committee continues to
meet regularly and this week announced a series of new
measures aimed at propping up declining remittance income.
End Summary.


2. (SBU) "The Moroccan exception" is no longer the watchword
of most GOM officials as they assess the country's position
in the face of the international economic downturn (Ref A).
While the financial sector remains sheltered as a result of
Morocco's continuing capital controls, leading analysts such
as the Bank al-Maghrib's Karim El Aynaoui emphasize that as
an open economy Morocco cannot avoid being impacted by
broader macro-economic trends. His department's most recent
monthly economic bulletin details widespread slippage in
non-agricultural segments of the economy and continuing
pessimism among business leaders about the Moroccan economy's
prospects in the short to mid-term. In the Bank's most
recent survey of business sentiment, executives reported a
decline in orders and an inventory build-up, with all
industrial sectors except agro-industry and the chemical
industry reporting a decline in production. All sectors also
shed jobs, with the textile sector taking one of the largest
hits. The Moroccan textile association AMITH noted that its
members cut 13,000 jobs in March, 11,000 directly as a result
of the crisis (Ref B).


3. (U) Other recent statistics tell a similar story of weaker
economic activity. At the end of March, electricity demand
was down by 0.3 percent, as a result of a 2 percent decline
in industrial demand (domestic demand was up 6.4 percent),a
dramatic shift from the 8 percent annual increases in demand
that have typified recent years. Petroleum imports were also
down 18 percent by volume for the first four months of 2009,
although this news was somewhat more welcome as the declining
demand eased the current account deficit. Exports have also
shown weakness, falling by 30.4 percent in the first quarter,
with phosphates, which led last year's export growth, down by
52 percent. (Note: Mining production itself is down 84
percent this year from last, largely as a result of the
phosphate industry's difficulties.) The export decline was
also marked in advanced sectors like electronic and
automotive parts, as well as in traditional export sectors
like textiles. Recently, however, AMITH and Minister of
Finance Mezouar have been engaged in a war of words over a
temporary rise in Morocco's textile exports in April.
Industry experts dismiss the 41 percent year on year increase
for the month as meaningless, noting that April 2008 was the
worst month in the industry's history, and that exports
remain down overall for the first four months of the year.


4. (U) Tourism has also suffered. Whereas tourist arrivals
were up 4 percent over last year through the end of March,
hotel stays declined nearly 7 percent, and tourist revenues
declined by 21 percent to 9.4 billion MAD (1.2 billion USD).
Remittances from Moroccans abroad, another key component of
the balance of payments, also showed weakness, falling 14
percent. These two flows, together with investment income,
have historically compensated for Morocco's structural trade
deficit. While foreign direct investment has remained
relatively stronger than the other two factors, with an
inflow of 8.7 billion MAD (1.1 billion USD) in the quarter,
foreign reserves have slipped to the point where they now
total only 5 months of imports. In sum, as Minister of
External Commerce Abdellatif Maazouz told an international
conference in Fes on May 28, while Morocco has not been
touched by the "financial crisis" per se, its balance of
payments is channeling the broader economic downturn to
Morocco (Ref C).


5. (U) The implications of the slowdown on overall economic
activity and government finances are also becoming evident.
If this year's exceptional harvest will keep growth at or
near 5 percent, despite a slump in non-agricultural growth to
1.3 percent in the first quarter (the lowest level since
2002),the government's relatively comfortable budgetary
situation is also under pressure. After two years of
essentially balanced budgets, largely resulting from
burgeoning tax receipts, this year promises to be more
difficult. The government's surplus at the end of the first
quarter, a period when many payments are booked, declined by
nearly half to 7.6 billion MAD (900 million USD). The main
culprit was a decline of 12.5 percent in tax revenue,
including a 22 percent decline in income tax revenue and a
17.5 percent fall in corporate tax receipts. Press reports
indicate that tax chief Noureddine Bensouda recently convoked
his team and ordered them to tighten the screws to increase
revenues, expanding the number of audits and checking for
irregularities.


6. (U) One area where the downturn's broader impact has not
fully registered is that of employment. If recent CNSS
figures show a loss of 43,000 positions in the formal sector,
the number is not yet sufficient to show up in the country's
overall unemployment rate, which remains at 9.6 percent of
the work force. The more significant urban rate stands at
14.1 percent, actually down from its level last year of 14.7
percent. (Rural unemployment recently rose to 4.7 percent.)


7. (SBU) The government continues to monitor the situation
closely via its surveillance committee, and this week
unveiled several new measures aimed at shoring up vulnerable
segments of the economy. These include widening the
availability of the program which provides short term
assistance to exporters to help them cover part of their
social security expenses. Concerned about the decline in MRE
transfers, the government also removed Western Union's
monopoly and lowered the fees on money transfers.


8. (SBU) Comment: If senior government officials remain
reluctant to concede that Morocco is now caught up in the
economic downturn, mid-level officials like Treasury Director
Zouhair Chorfi have been less reticent. Their warnings about
future vulnerability are well timed, because while this
year's harvest has cushioned a good bit of the downturn, the
vagaries of climate make it uncertain whether this will be
repeated next year. Were Morocco to return to an average or
below-average harvest, the combination of that with the
current anemic level of non-agricultural growth might well
tip the economy into recession. End Comment.


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