Country Report Laos June 2009

Outlook for 2009-10: Economic growth

As a result of the global recession, Laos's economic growth will slow in the forecast period. In 2009 real GDP growth will fall to 3%, the slowest rate since the early 1990s, before recovering to 5% in 2010. At present, economic growth is being driven by an expansion in industry, the output of which has been rising at double-digit year-on-year rates. The main engines of industrial growth are construction and mining. The construction sector will be supported by the increasing number of infrastructure development projects, particularly road- and bridge-building schemes, and also hydropower projects (for example, construction of the US$1.2bn Nam Theun II hydroelectric project began in late 2005 and is on schedule to be completed by 2010). Continued expansion will depend on financing from international donors, but Thai investors are expected to resume work on the Nam Theun I and Nam Ou projects which were suspended in the first quarter of 2009 owing to financing concerns linked to the global credit crunch. The fall in world mineral prices will lead to a downturn in investment in the mining sector, which has experienced strong growth in recent years as a result of an expansion of gold and copper mining. Chinese state-owned companies are replacing Australian firms as the main investors in the mining sector.

The manufacturing sector will remain weak. The garment industry faces intense competition from China and Vietnam, while an appreciation in Laos's currency, the kip, has made the country's exports less competitive in overseas markets. Production of building materials, such as cement, limestone and electrical cables, will be adversely affected by the slowdown in the construction of infrastructure and housing. Agricultural growth will remain weak and faces downside risks from falling prices for agricultural commodities. The outlook for services is mixed and the tourism industry will struggle to grow in the global economic downturn.

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