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8 Feb 2021

Econ Digest

Myanmar’s economy projected to contract 2.5% after political upheaval

         More dynamic relationships between Myanmar and Western powers have been imperative in the development of Myanmar's economy over the past decade. As a result, the country has reported relatively impressive economic growth on the back of increased foreign investment, thus helping bolster its exports and allowing Myanmar to make the transition from an agricultural society to an industrial one. Additionally, there has been massive employment generation and a significant increase in consumer purchasing power in Myanmar. Despite these improvements, the recent seizing of power by the Myanmar army on February 1, 2020 is bound to stall its relationships with Western powers and may lead to economic sanctions, thus inevitably hurting its overall trade, investment and economic conditions.

         Trade privileges enable the leapfrogging growth of Myanmar’s exports to the EU and the US. Therefore, if the country loses trade privileges granted by the EU and US, its exports will be directly affected; textiles and garments will be particularly impacted, because up to 60% of these products are exported to the EU and US. KResearch views that Myanmar’s exports may contract by approximately 10% in 2021. In addition, the seizing of power by Myanmar's army will also hurt foreign investment. Political uncertainties and risks of the withdrawals of trade privileges may prompt foreign investors to adopt a wait-and-see attitude or even to halt their investment in Myanmar. This, along with the ongoing COVID-19 pandemic, leads KResearch to expect that foreign investment in Myanmar will decline by 30-40% in 2021.

         The above-mentioned risks would result in a broad-based impact on the economy as there are over 1 million workers employed in the textile and garment industries, and as such, KResearch expects that Myanmar's economy may contract within a range of 0.5-2.5% in 2021. Regarding the impact on Thailand, Myanmar’s economic vulnerability will put pressure on its overall production and consumption. For this reason, KResearch expects that border trade between the two nations will continue to shrink for the fifth consecutive year by 0.5% in 2021, with trade volume dropping to approximately THB86.6 billion. Thailand may also face a shortage of workers in a number of businesses, due to uncertainties surrounding the policies on movements of Myanmar workers to Thailand, such as the risk of closing the checkpoint, stringent inspections on passenger transportation via Thailand-Myanmar border, etc.

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