VIENTIANE (Vientiane Times/Asia News Network): The Asian Development Bank (ADB) has lowered the economic growth forecast for Laos in 2023 to 3.7 per cent from 4 per cent projected in April.
The slower than expected growth projection was linked to slower growth prospects in China, impacts from recent floods, macroeconomic pressures arising from unsustainable public debt and a weak Lao kip, the Lao News Agency reported citing the ADB’s outlook.
However, the Asian Development Outlook (ADO) for September 2023, an update of ADB’s flagship publication, stated that the Lao economy’s growth forecast for 2024 was kept at 4 per cent.
According to the ADB, growth in the region was upbeat in the first half of 2023, driven by healthy domestic demand and the reopening of China after the Covid-19 pandemic.
Rebounding tourism, resilient service sectors, healthy money transfers into the region, and improving financial conditions all helped support economic activity.
However, weakness in China’s property sector is weighing on regional prospects. High global interest rates have increased the risk of financial instability.
One of the main challenges for Laos is to rein in inflation. Although inflation rose more slowly in August at 25.88 per cent, down from 28.64 per cent in June and 27.8 per cent in July, the rate is one of the highest in the region.
The weak kip is one of the main factors driving inflation, according to a report from the Lao Statistics Bureau.
The ADB Country Director for Laos, Sonomi Tanaka, was quoted by the Lao News Agency as saying: “Rising food prices have affected households’ purchasing power, with many families coping by eating less. Sound macroeconomic management, including stronger coordination across fiscal and monetary policies, is urgently needed to address the country’s economic and financial challenges.”
Currency depreciation and high inflation tempered household spending in the first half of 2023. After falling by half against the United States (US) dollar and by 44 per cent against the Thai baht in 2022, the kip depreciated from January to August 2023 by a further 13.6 per cent against the US dollar and 14.8 per cent against the baht, according to the Lao News Agency.
The ADB also lowered Southeast Asia’s growth outlook to 4.6 per cent this year, from an earlier projection of 4.7 per cent, due to weaker export demand.
The ADB’s projected growth for Thailand (Laos’ main trading partner) is 3.5 per cent for 2023, up from the earlier projection of 3.3 per cent. The growth forecast for Thailand for 2024 is 3.7 per cent.
The projected growth for Vietnam, another key trading partner of Laos, is 5.8 per cent in 2023 and 6.8 per cent in 2024.
Other projected growth rates for countries in the region are Cambodia (5.3 per cent this year and 6 per cent in 2024), Indonesia (5 per cent for this year and next year), Malaysia (4.5 per cent this year and 4.9 per cent in 2024), the Philippines (5.7 per cent this year and 6.2 per cent in 2024), and Myanmar (2.8 per cent this year and 3.2 per cent next year).