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22 Apr 2020

International Economy

CLMV’s economic growth crashes to two-decade low due to COVID-19; worst effects among countries more dependent on foreign income (Current Issue No.3100)


              ​The COVID-19 pandemic is having a negative impact on CLMV economies through their dependency on foreign-sourced revenue from tourism and exports. Countries which are heavily dependent on foreign revenue are facing more negative effects during this crisis.

            Cambodia is the most severely affected country, as it is extremely reliant on foreign income through tourism and exports. Tourism is expected to shrink by an estimated 60 percent this year. Meanwhile, in terms of exports, Cambodia remains most dependent on the EU and US markets. Both the United States and the EU bloc are currently most vulnerable to the spread of COVID-19. Therefore, the value of exports for 2020 is projected to decline by 10 percent, which would result in a 0.9 percent contraction in Cambodia's overall economy.

            Vietnam has been moderately affected by the pandemic since it only relies on foreign revenue in its export sector. Fortunately, Vietnam has numerous export trading partners, which helps the country to diversify risks considerably well. As Vietnam's key exports are electronic goods and electronic parts, the necessary changes to consumer behavior, particularly the trend of working from home, has benefited exporters as it has led to a rise in the demand for computer equipment and integrated circuits. Overall, Vietnam's exports in 2020 have fallen by only a small margin, with a projected 5 percent decline in the value of exports. The Vietnamese government has implemented stimulus policies in the form of grants and tax reduction. Vietnam's economic growth rate is still expected to be at 3.6 percent this year.

            Myanmar has seen relatively little economic impact from the COVID-19 crisis because its revenue gained through exports and tourism is relatively low. Even so, Myanmar's exports have been severely affected since Myanmar's key export is natural gas, and that has been heavily impacted by continuous fuel price reduction in the global market. Garments and textiles – Myanmar's second-biggest exports – have also endured a critical hit from the closure of factories in China and from declining demand in the EU market. The value of Myanmar's exports is projected to contract by 10 percent this year. Nevertheless, the EU has established a quick assistance fund of 500 million Euros to assist Myanmar's textile industry affected by COVID-19, which is set to ease the pressure placed upon employment of the workforce and household consumption. KResearch views that the EU's quick assistance fund - valued at approximately 1 percent of Myanmar's GDP - will be able to support the earnings of its citizens and allow household consumption to grow at a similar level to what was seen before the present crisis unfolded. Additionally, investment in Myanmar's basic infrastructure is expected to continue as scheduled. Therefore, Myanmar's overall economy will likely grow at a level of 4.3 percent in 2020.

            Laos PDR is another country that has seen relatively little economic impact from the COVID-19 pandemic, owing to the fact that it does not rely on tourism or exports as major sources of income. Laos' tourism is most dependent on Thai tourist arrivals. With Thailand being among the more susceptible ASEAN countries during the crisis, Laos' tourism is likely to be badly affected as a consequence. In terms of Laos PDR's exports, the value of exports for 2020 is projected to contract by around 5 percent. Fortunately, most of Laos PDR's exports are from the mining and electricity generation industries – neither of which employs a great number of people. Development in its tourism sector is still in its infancy and accounts for a rather small portion of the country's GDP. As a result, earnings for the majority of its citizens remain largely unaffected, while household consumption continues to grow at a similar level to that achieved prior to the COVID-19 crisis. In addition, investment in the country's high-speed railway project – valued at over USD 7 billion - will still proceed as scheduled. Hence, foreign direct investment is barely affected by the ongoing situation, and broadly speaking, Laos PDR's economy is projected to grow at 3.9 percent in 2020.

            While the COVID-19 crisis has caused the rate of economic growth in the CLMV bloc to be at its lowest in two decades, the CLMV economies could grow at 3.4 percent this year. Overall, the CLMV economies will tend to undergo a speedy recovery over the next 1 to 2 years – with economic growth projected to reach 6.4 percent in 2021 and 6.5 percent in 2022.

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