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23 Apr 2021

Econ Digest

Political turmoil may cause Myanmar’s economy to contract 8.5% in 2021


        Amid positive signs seen in the global economic recovery, Myanmar is experiencing political turmoil at home. The country's image in the eye of Western nations is at peril after the US suspended the Trade and Investment Framework Agreement (TIFA) that it had entered into with Myanmar in 2013. This means that its generalized system of preference (GSP) granted by the US was automatically rescinded. Moreover, Myanmar is at risk of being stripped of the EU's 'Everything But Arm' program, while pressures from international community in various aspects are increasing.  All these factors will hinder business operation in the future.
          After Myanmar's army seized power from the government on February 1, 2021, there was an emergence of the Civil Disobedience Movement (CDM). Its hostility towards the army has intensified. Instability in Myanmar has not only stalled its economic activity, but caused all economic drivers to slow down faster than expected. KResearch projects that Myanmar's economy will contract approximately 8.5% (or contract within a range of 9.8-7.2%) during 2021. If instability in the country does not become much worse and the relevant authorities can ensure that economic and political conditions in 2H21improve, it is expected that its economy may shrink only 7.2%. However, if instability there persists until the year-end, its economy will likely contract 9.8%.

           Thailand's cross-border shipments to Myanmar reverted to a steep contraction of 21.4%YoY in February 2021, due partly to the resurgence of COVID-19 and the impact of instability in Myanmar, which dampened demand for most products. KResearch is of the view that although instability in Myanmar may affect border trade for a time, cross-border freight transport between Thailand and Myanmar remains intact somewhat because Myanmar is heavily dependent on many Thai products. Moreover, there has been substantial hoarding of Thai products in some areas due to concern about political stability in Myanmar earlier. However, as purchasing power and economic conditions are projected to weaken during the remainder of 2021, Thailand's cross-border shipments to Myanmar will likely shrink 6.0% to THB81,890 million in 2021, representing a contraction for the fifth consecutive year (or contract 8.0% if Myanmar's economy deteriorates throughout 2021 to contract 2.9% if the situation in Myanmar improves during 2H21).

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