July 26, 2011

Cambodia, Laos and Myanmar Business Forecast Report Q3 2011


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Cambodia, Laos and Myanmar Business Forecast Report Q3 2011

South East Asia's frontier economies have held up relatively well in spite of a weak economic recovery in the US , fiscal austerity in the eurozone and negative spillover effects from the Japan earthquake.

The Association of Southeast Asian Nations (ASEAN )'s drive to establish an ASEAN Community by 2015 is expected to support economic growth for Cambodia, Myanmar and Laos through increased trade and foreign direct investments (FDI ) over the coming years. China is also becoming a key source of FDI for Myanmar, Cambodia and Laos in recent years and we expect this to continue. Accordingly, we have upgraded our economic growth outlook on Cambodia and Myanmar to reflect resilient momentum behind these economies.

We are seeing encouraging evidence that Cambodia's economic recovery remains on track and real GDP growth could soon return to long-term trend growth of around 6.0-7.0%. The government's new rice production and export policy is expected to support growth in the agricultural sector, while a positive outlook for the country's key trading partners suggests that demand for exports should remain resilient. Latest trade figures and economic data published by the Ministry of Commerce and the Ministry of Economy and Finance also point towards a steady recovery in economic activity this year. Accordingly, we have revised Cambodia's real GDP growth upwards from 3.4% to 4.5% for 2011.

Laos is expected to attract a record amount of FDI inflows this year as several large scale infrastructure projects are set to commence construction over the coming months. Despite an impressive surge in FDI inflows in 2010, we are maintaining a cautious outlook on Laos's real GDP growth in 2011 as prevailing global economic headwinds continue to cloud the outlook for FDI inflows and exports. Although we remain positive towards the surge in FDI , we warn that large foreign capital inflows could potentially result in inflationary pressures due to a sudden pick-up in demand for labour and construction materials over the coming quarters.

Major political and economic developments in recent months suggest that the tables are finally beginning to turn in favour of Myanmar's economy. On the political front, we expect a strategic political alliance between Naypyidaw and Beijing to help boost Myanmar's political influence in the region. On the economic front, we expect FDI inflows from China and ASEAN to keep the economy growing at a robust pace over the coming years. In light of these positive developments, we have upgraded our 2011 real GDP growth forecast to 6.0% from 4.0% previously. Over the longer term, we also expect Myanmar's economic growth to average at a more robust pace of 5%, compared to 4.0% previously.


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