Major Trends as Seen by Three Economists
28 May 2008
Read by 1553 persons
In the 2008 budget forecast, we projected a 6.1% growth rate for the fiscal year. Next June, we will re-evaluate this growth rate, in light of the new data that has emerged in the meantime.
In particular, the uninterrupted rise in oil prices and the difficulties faced by Western economies, particularly European ones, which account for 70% of foreign demand for Morocco. We predicted as early as January that foreign demand would slow down, falling from a 7.6% increase in 2007 to 5.6% in 2008. But I think we are heading towards slightly less than 5.6%.
That said, the important thing, in my opinion, is not to have, at the end of the year, a growth rate of 6.1% or 6.5% or even 7%, all this is within the same range; the important thing, however, is that there is no reversal of trend. And we see clearly that, in recent years, there has been no trend break. This is the result of a number of reforms, but also of an expansive budget policy: for 2008, for example, the investment budget has increased by 10 billion dirhams compared to 2007.
Growth in 2008 will benefit from the mechanical effect of the increase in agricultural yields compared to the previous year, but the bulk of this growth comes from domestic demand, with foreign trade being in deficit as everyone knows. The fact that growth is mainly driven by domestic demand is, in my opinion, a good thing: it means that there is endogenous development taking place.
On inflation, mainly of external origin, we recorded a 2.4% increase in the price index in the first quarter, with a significant increase in the food price index of 4.5%. Our forecasts for the second half of the year show overall inflation of 3.2% and food inflation of 5.3%.
We have another way of understanding growth: what fundamentally interests us as a central bank is the gap between actual output (observed GDP) and potential output (the level of activity compatible with normal use of production factors).
This gap is an indicator of potential demand pressures on inflation. On growth, since the beginning of the 2000s, we have been in an acceleration phase. We have gained around 1 point of GDP in trend, which is significant. It must be understood that growth is a medium- and long-term phenomenon, to be distinguished from cyclical fluctuations in activity.
Another point to emphasize is that this growth is driven by domestic demand. I think it is the critical mass of reforms undertaken that has boosted growth. And this has resulted in an increase in investment, whether national (public or private) or foreign. On the question of the growth model, Morocco, over a very long period, is not a country that has developed through exports, but mainly through domestic demand.
That said, there is a very important dynamic today: Morocco is becoming more and more an exporter of services - the film industry, business process outsourcing activities, services related to call centers, etc. Regarding inflation, we publish a central forecast of price increases, and this is surrounded by probabilities that reflect the balance of inflationary risks. In the first quarter of 2008, for example, we published a central forecast of 2.3%. We are not far from what the HCP published as a result for the first quarter, namely 2.4%.
For the year 2008, we published in the March monetary policy report a central forecast of 2.2%. Of course, this should be read in conjunction with the probabilistic assessment of the uncertainty ranges surrounding it, as represented by the Fan Chart that we publish.
Some estimates project growth of around 5 to 5.5%, which constitutes a recovery after the weak growth of 2007 (around 2.5%). This range seems more realistic and more likely for various reasons: cereal harvest of around 50 million quintals, acceleration of inflation in food prices, impact of the foreign trade deficit…
Official statistics show that growth is essentially driven by domestic demand. However, the rise in prices, insufficient real purchasing power, and the limits to the spread of the spillover effects of large public infrastructure projects risk impacting household consumption. Perhaps the application of the results of the social dialogue in the second half of 2008 will give a boost to consumption, but vigilance against speculative practices must be rigorous.
I think that budgetary policy should be more concerned with employment and the fight against poverty than with the level of the deficit, while of course avoiding excessive slippage. In any case, the reality of the Treasury deficit is quite different, and its financing is done through borrowing. Moreover, if the Finance Act has retained a deficit of 3%, some estimates, such as that of the House of Councillors, forecast a deficit for 2008 of 3.6%.
Regarding the relationship between money supply and growth, there is a double correlation that deserves clarification: on the one hand, the significant gap between the growth rate of money and that of nominal GDP in recent years; and, on the other hand, the impact of this correlation on the general price level. Indeed, if the role of the issuing institute, for a quarter of a century, has been to monitor the level of inflation, it is because we still believe in a positive correlation between real growth, the evolution of monetary aggregates, and the general price level.
Posted on May 28, 2008
lavieeco.com
In particular, the uninterrupted rise in oil prices and the difficulties faced by Western economies, particularly European ones, which account for 70% of foreign demand for Morocco. We predicted as early as January that foreign demand would slow down, falling from a 7.6% increase in 2007 to 5.6% in 2008. But I think we are heading towards slightly less than 5.6%.
That said, the important thing, in my opinion, is not to have, at the end of the year, a growth rate of 6.1% or 6.5% or even 7%, all this is within the same range; the important thing, however, is that there is no reversal of trend. And we see clearly that, in recent years, there has been no trend break. This is the result of a number of reforms, but also of an expansive budget policy: for 2008, for example, the investment budget has increased by 10 billion dirhams compared to 2007.
Growth in 2008 will benefit from the mechanical effect of the increase in agricultural yields compared to the previous year, but the bulk of this growth comes from domestic demand, with foreign trade being in deficit as everyone knows. The fact that growth is mainly driven by domestic demand is, in my opinion, a good thing: it means that there is endogenous development taking place.
On inflation, mainly of external origin, we recorded a 2.4% increase in the price index in the first quarter, with a significant increase in the food price index of 4.5%. Our forecasts for the second half of the year show overall inflation of 3.2% and food inflation of 5.3%.
We have another way of understanding growth: what fundamentally interests us as a central bank is the gap between actual output (observed GDP) and potential output (the level of activity compatible with normal use of production factors).
This gap is an indicator of potential demand pressures on inflation. On growth, since the beginning of the 2000s, we have been in an acceleration phase. We have gained around 1 point of GDP in trend, which is significant. It must be understood that growth is a medium- and long-term phenomenon, to be distinguished from cyclical fluctuations in activity.
Another point to emphasize is that this growth is driven by domestic demand. I think it is the critical mass of reforms undertaken that has boosted growth. And this has resulted in an increase in investment, whether national (public or private) or foreign. On the question of the growth model, Morocco, over a very long period, is not a country that has developed through exports, but mainly through domestic demand.
That said, there is a very important dynamic today: Morocco is becoming more and more an exporter of services - the film industry, business process outsourcing activities, services related to call centers, etc. Regarding inflation, we publish a central forecast of price increases, and this is surrounded by probabilities that reflect the balance of inflationary risks. In the first quarter of 2008, for example, we published a central forecast of 2.3%. We are not far from what the HCP published as a result for the first quarter, namely 2.4%.
For the year 2008, we published in the March monetary policy report a central forecast of 2.2%. Of course, this should be read in conjunction with the probabilistic assessment of the uncertainty ranges surrounding it, as represented by the Fan Chart that we publish.
Some estimates project growth of around 5 to 5.5%, which constitutes a recovery after the weak growth of 2007 (around 2.5%). This range seems more realistic and more likely for various reasons: cereal harvest of around 50 million quintals, acceleration of inflation in food prices, impact of the foreign trade deficit…
Official statistics show that growth is essentially driven by domestic demand. However, the rise in prices, insufficient real purchasing power, and the limits to the spread of the spillover effects of large public infrastructure projects risk impacting household consumption. Perhaps the application of the results of the social dialogue in the second half of 2008 will give a boost to consumption, but vigilance against speculative practices must be rigorous.
I think that budgetary policy should be more concerned with employment and the fight against poverty than with the level of the deficit, while of course avoiding excessive slippage. In any case, the reality of the Treasury deficit is quite different, and its financing is done through borrowing. Moreover, if the Finance Act has retained a deficit of 3%, some estimates, such as that of the House of Councillors, forecast a deficit for 2008 of 3.6%.
Regarding the relationship between money supply and growth, there is a double correlation that deserves clarification: on the one hand, the significant gap between the growth rate of money and that of nominal GDP in recent years; and, on the other hand, the impact of this correlation on the general price level. Indeed, if the role of the issuing institute, for a quarter of a century, has been to monitor the level of inflation, it is because we still believe in a positive correlation between real growth, the evolution of monetary aggregates, and the general price level.
Posted on May 28, 2008
lavieeco.com
