SCB EIC expects CLMV economies to accelerate in 2024

29/03/2024 3 min read

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SCB EIC expects CLMV economic growth to accelerate in 2024, backed by a recovery in exports and tourism, which will bolster domestic demand through labor market recovery. Looking ahead, CLMV economies are poised to benefit from the “China +1” strategy, with multinational enterprises seeking to diversify their manufacturing bases to mitigate rising geopolitical risks.

This relocation trend will help buttress foreign direct investment (FDI) in CLMV countries in the medium term. In 2024, SCB EIC anticipates GDP growth of 6.0% in Cambodia (up from 5.6% in 2023), 4.7% in Lao PDR (from 4.5%), 3.0% in Myanmar (from 2.5%), and 6.3% in Vietnam (from 5.1%).

The growth rate of each CLMV economy still lagged behind the pre-COVID-19 average. Slower growth is primarily attributed to pressures from China’s economic deceleration, given CLMV’s heavy reliance on China—especially in trade, investment, tourism, and the real estate sector. Meanwhile, Cambodia and Vietnam witnessed an uptick in non-performing loan ratios following the withdrawal of COVID-19 relief measures. Furthermore, tighter domestic financial conditions may hinder credit from financial institutions and access to liquidity for businesses. Geopolitical conflicts also pose significant risks that warrant monitoring. In the short term, disruptions in the Red Sea and a drought in the Panama Canal could hamper global trade and heighten costs in export logistics for CLMV countries. In the long term, the CLMV region must prepare for the rising tides of protectionism worldwide, notably trade barriers and tariffs.

Economic recovery has varied across countries, depending on country-specific factors. Notably, Lao PDR faces risks from high public debt, which is mostly denominated in foreign currencies, and depleting foreign reserve buffers. Amidst a tightening of global financial conditions, this exacerbated the weakening Lao kip, increasing the burden of foreign debt and leading to a sticky inflation surge. These are factors pressuring Lao PDR’s medium-term economic growth potential. To address this, the Lao PDR’s government has undertaken a substantial fiscal consolidation along with debt restructuring negotiations while seeking new sources of funding to strengthen fiscal stability. Meanwhile, Myanmar still grapples with structural challenges stemming from political unrest that has been ongoing since 2021 and intensified in late 2023. Political turmoils have dampened domestic demand and economic activities, while Western sanctions have contributed to a weakening external demand. Other risks to Myanmar come from the US dollar shortage, resulting in weakening Myanmar kyat and swelling inflation, alongside disruptions in transportation and electricity supply. These challenges require a stable political environment to resolve, making short-term solutions rather elusive.

CLMV local currencies may face softer downward pressures in 2024, as central banks in major economies are likely to lower their policy rates from mid-2024 onwards. These anticipated rate cuts will help attract capital inflows into emerging markets—including CLMV economies—and bolster FDI through lower funding costs. Nonetheless, country-specific challenges remain pivotal in local currency dynamics. We thus anticipate further depreciation in some CLMV currencies this year.

In 2024, CLMV-Thailand trade and investment are poised to recover from a subdued state in 2023.
A rebound is propelled by improving global trade, particularly in the manufacturing sector, and ongoing regional economic recovery. Besides, we expect global and Thailand’s financial conditions to ease gradually this year, which would help facilitate Thaland’s outward direct investments in the CLMV region. Nonetheless,the investment rebound should be moderate, given the unfavorable investment climate due to economic instability in some CLMV nations. SCB EIC maintains a positive outlook for CLMV economies in the long term. CLMV will remain one of the high-growth regions which attracts both Thai and foreign investors with a large pool of young workforce, expansive free trade agreements, and a strategic location connecting to major markets like China and India.