Lao PDR Economic Monitor, December 2011

Abstract

The Lao PDR economy continues to grow vigorously at 8 percent this year despite the impact of typhoons and slower growth in the global economy. That being said, the country's growth estimate was revised slightly downwards to 8 percent from an early estimate of 8.6 percent to account for (i) the adverse impact on agriculture by the typhoons Haima and Nock ten during the second half of the year as well as the adverse impact of the current flooding in Thailand on Lao PDR's tourism and trade sectors; (ii) an upward revision of 2010 Goss Domestic Product (GDP) due to a higher than anticipated output of electricity generation from the Nam Theun 2 project; and (iii) the commencement of operations at the Nam Ngum 2 hydropower dam. The mining sector's contribution to growth in 2011 is expected to slow according to company production plans and actual outputs in the first 3 quarters of this year. The manufacturing sector is projected to grow at 15 percent driven by garment, construction materials, and food and beverage production. The garment sector started shifting production towards higher value-added products and began benefiting this year from the European Union (EU) relaxing material sourcing regulations for LDCs. The services sector is also benefiting from higher domestic demand, particularly for wholesale, retail trading and telecommunications. With significant challenges and risks ahead - increasing uncertainties, particularly on signs of spreads of debt concerns in Europe, over-heating in emerging economies (high inflation) and price volatility, global economic growth is projected to slow in 2011 and 2012. Emerging and developing economies are projected to experience healthy growth in the near term. Challenges lie on two main fronts, i.e. rebalancing from public to private demand, particularly in advanced economies and rebalancing domestic demand, particularly in emerging and developing economies in order to promote resilience to external shocks and further reduce inflationary pressures. This paper bases its country-level projections for Lao PDR's Foreign Direct Investment (FDI) and export demand on International Monetary Fund (IMF) and the World Bank's projections (EAP Update Nov-2011) for the regional and global economic outlook and commodity prices.