IMF Predicts Lao Economy to Grow Only 2.2 Percent This Year

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According to The International Monetary Fund (IMF), Laos is estimated to grow only 2.2 percent this year, the growth rate will increase to 3.1 percent by next year and will rise to 4.3 percent in 2027.  

The growth projection in October remains the same as that of July after it was downgraded from April’s forecast of 3.2 percent.

Both external and internal factors are responsible for the downgraded rating, considering that the global growth rate will decrease from 6 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023.

The IMF report informed, “This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the Covid-19 pandemic. It reflects significant slowdowns for the largest economies: a US GDP contraction in the first half of 2022, a euro area contraction in the second half of 2022, and prolonged Covid-19 outbreaks and lockdowns in China with a growing property sector crisis.”

“About a third of the world economy faces two consecutive quarters of negative growth. Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 2024.”

“Upside inflation surprises have been most widespread among advanced economies, with greater variability in emerging market and developing economies.”

In Laos, the repeated rise in fuel prices and the lack of fuel reported in May and June considerably affected economic activities like agriculture and manufacturing in the first half of the year.

The Asian Development Bank (ADB) on the other hand, is hopeful for Laos’s recovery with new investment in the energy and mining sectors.

“A consortium of lenders is preparing finance for the 600-megawatt Monsoon Wind project which, once completed, will export all the power it generates and be Southeast Asia’s biggest wind energy project,” ADB stated in a recent report.

“Energy exports will remain robust with seven hydropower projects scheduled to come online in 2022, adding 4.1 billion kilowatt hours to Laos’ export earnings. The current account deficit is expected to narrow to the equivalent of 4.5 percent of GDP from 5 percent in 2021 on buoyant export growth outpacing imports.”

The ADB had earlier reduced the economic growth recovery predictions for Laos in 2022 to 2.5% from the earlier 3.4% projection and to 3.5% from 3.7% for 2023 due to supply disruptions and rising commodity prices that have led to 22-year high inflation.

Additionally, an October update from the World Bank of East and Pacific lessened the growth forecast for Laos in 2022 from 3.8 percent to only a 2.5 percent projection and retained 3.8 percent for the next year.

The Lao Academy of Social and Economic Science (LASES) has also changed their forecast economic growth for Laos in September this year and predicted that the country will only see 3 percent growth from the previously 4 percent predicted in August. The academy claimed that the downgrade has to do with slow expansion in sectors like consumption, exports, together with private and state investment.

The IMF report informed that developing countries are having a difficult time due to a tough external environment aided by the sharp appreciation of the USD. This is leading to a cost-of-living crisis in emerging economies caused by increased domestic prices for most essential goods.