Prophet Of Doom No More (If Only)
This post will consider a finer estimating of Moroccan business cycles – with some statistical device economists do not usually use (so I’ve been told) to get a smoother estimation of business cycles.
Primary results (expatiated in an earlier post) still hold, though because they remain a raw estimate of business cycles in Morocco, fluctuations are influenced by seasonality, extemporaneous events, and other ‘white noise’ effects we seek to minimize with such computations. Now, it does not really matter to express these numbers of terms of GDP size, or Business revenues – this is in fact a computation on relative terms of change – in facts, there is little use of these computations in monetary or volume terms, because they have been originally computed on log-based real GDP per capita.
We consider to that effect non-parametric regular smoothing, not because it is best -compared to regular filters- but simply because it allows for more visual understanding (even serious academic debates on the best way to smooth over the business cycle curve) but it also minimizes the deterministic features of traditional filters like Hodrick-Prescott; non-parametric smoothing refers back to random variables. For sure, referring to Moroccan business cycles as a random variable is not reassuring, but the randomness remains contained within a very well-defined, almost natural centred distribution;
This however, does not say business cycles are normalized, and when smoothed, the graph shows the next couple of years cannot do better than the best years of Moroccan economics, and these turned out to be the prelude to two decades of painful adjustment and recovery: the mid and late 1970s saw the widest variance from the long-term growth, and no period of Moroccan history managed to reach that level, and there is a reason for that.
The 1975-1983 period was the high water-mark of an indebted economy, fuelled with generous subsidies and Phosphates revenues: Guaranteed debt relative to GNI was 1.93% in 1974 (around the same number, 1.95% in 2010) Morocco was pouring money into the new Saharan provinces, investing in non-productive assets (like military equipment) and relying more and more on foreign borrowings to make up for the shortfall when the Phosphate manna dried up. Are we experiencing these conditions again in 2011? Debt is increasing to around 54% of GDP, and there are a lot of investments going around, enough to doubt their direct impact on productivity, at least on a 3 to 5 years basis.
Assuming Morocco keeps up with its current growth, there will be a time one macro-variable will falter, or exhaust itself. I would go for public finances or real estate development, but the thing is, the current business cycle starting from 2000 will come to an end in a couple of years; unless some positive externalities kick in.
By that, I mean the trend growth shifts up, thus re-adjusting computations, and allowing for the expansionary cycle to continue well into as many years as these externalities can influence. Otherwise, and that seems to me to be the most realistic scenario, given an expected slumping global demand for Moroccan exports, the economy will fall into a contraction cycle. While the systemic effect explains a lot in the next progressive halt in business activities, domestic indicators could well signal the end of expansion.
Playing the prophets of doom is not a pleasant task, much less a ‘patriotic’ one. But voters trying to make sense out of electoral manifestos, economic and political elites trying to foresee their way and business out of uncertainty and economic fogginess should keep in mind these facts:
– Moroccan officials have agreed to IMF to carry out fiscal consolidation measures; that means budget cuts and austerity measures. Slimming down government is not always bad for households and businesses, but we in Morocco do have a reputation for botched reforms that quickly turn into economic recessions.
– Bank Al Maghrib is planning for a reduction in Government Debt: whether banks and businesses like it, the Central Bank class the shots when it comes to market liquidity. And I believe BAM staff clings to their reputation as inflation-adverse institution strongly enough not to yield to government pressure and raise main interest rates, a policy that would kill any chances for continued expansion (especially real estate, the main beneficiary of low 3.25% interest rates)
This, of course, is not as bleak as I make out; there is always a chance to focus on structural policies, redistributive fiscal policies (and that includes targeted tax cuts to small businesses) any policy, in effect, that would produce good results even in times of low growth; the salient point of such policies is however, a permanent transfer of wealth from super-wealthy households to the remaining population. So unless the authorities do not want to run the risk of a 1981-1984 re-run, they should consider more than a laughable 2Bn ‘solidarity fund’.
Technical Note: I have used the standard Kernel estimator, and computations yielded the following results:
Regression Data: 51 training points, in 1 variable(s) Years Bandwidth(s): 1.500668 Kernel Regression Estimator: Local-Constant Bandwidth Type: Fixed Residual standard error: 0.000536727 R-squared: 0.8179711 Continuous Kernel Type: Second-Order Gaussian No. Continuous Explanatory Vars.: 1