World Bank cuts Lao GDP growth forecast

The World Bank has cut Laos’ economic growth forecast for this year after the landlocked country suffered severe flooding this rainy season.

The bank has unveiled its latest economic projections for economies in the East Asia and Pacific region on its website. GDP growth in Laos is now projected at 8 percent in 2011, slightly lower than the previous projection of 8.6 percent due to widespread flooding.

Flooding in the wake of tropical storms Haima and Nock-Ten severely affected agricultural production bases, one of the main economic foundations of Laos, the bank says in its report.

The mining sector’s contribution to GDP growth in 2011 is also expected to slow, according to miners’ production plans, while the manufacturing sector is projected to grow at 15 percent, driven by garment and food beverage production.

The garment industry is shifting production towards higher value added products and started to benefit this year from a relaxation of material sourcing regulations from the European Union. A new European regulation allows garment firms to import cheap fabric and textiles from China.

The services sector is benefiting from higher domestic demand, particularly for wholesale and retail trading and for telecommunications.

Headline inflation has decreased in recent months due to slower growth in food prices, dropping from a peak of 9.8 percent in May to only 6.4 percent year on year in September. Food inflation dropped to 6.9 percent in September year on year from the peak of 14 percent in May.

The government had planned for economic growth of 8.3 percent in the 2010/2011 fiscal year, which ended last month. The government has not announced any revision of its GDP growth forecast despite the impacts of the two tropical storms.

In response to rising inflation, the Bank of the Lao PDR stopped lending for public infrastructure development, which was seen as the major cause of the drop in credit rate growth. The government has provided low interest loans to aid recovery efforts in flood-affected areas.

The World Bank also estimated that GDP growth in Laos in 2010 stood at 8.5 percent due to the increased output of electricity. The bank forecasts that GDP growth in 2012 will reach 7.5 percent.

According to the bank, the real GDP in developing East Asia is forecast to increase by 8.2 percent in 2011, and regional economic growth to slow to 7.8 percent in 2012.

Growth in developing East Asia in the first half of 2011 remained strong, but continued to moderate, mainly due to weakening external demand.

Global growth was also affected by supply shocks from geopolitical disturbances in the Middle East, supply chain disruptions following the earthquake and tsunami in Japan, and a slower-than-expected recovery of private demand in crisis-affected countries.

More recently, uncertainties over fiscal sustainability in the US and sovereign debt in the Eurozone fed financial volatility and affected investor and consumer sentiment. Domestic demand in East Asian economies has also been softening, driven by the normalization of fiscal and monetary policy, although it remained robust and the largest contributor to growth.



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