Laos Expected To Benefit From US-China Trade War

Source: Vientiane Times

Laos is one of the Southeast Asian nations that may benefit from the ongoing trade dispute between the US and China, but the government should also take steps to improve the investment environment.

These are among the conclusions of a report from the Centre for Macro-Economic Policy Research and Economic Restructuring (CMER) under the National Institute for Economic Research (NIER).

The centre invited researchers, policy-makers and planners from different government organisations and international bodies yesterday to present a report on macro-economic growth in 2018 and the expectations for 2019 and 2020, during a meeting chaired by the centre’s Director General, Dr Sthabandith Insisiengmay.

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The US-China trade war is one of the challenges and opportunities that is expected to benefit Laos and have an indirect impact on socio-economic development.

The trade war may hinder Chinese entrepreneurs from trading with and investing in Asian countries, and this could be a good opportunity for Laos to woo more investors from China and Japan.

However, the Lao government should improve regulations, policies and mechanisms to bring them in line with international standards and to promote bilateral cooperation.

Laos should also identify products for potential export to China and seek access to markets to further boost exports.

The trade war may also have a negative impact on Laos in the future, as goods imported from China by the US may be shifted to regional markets and could result in a trade deficit as Laos’ exports to China are still small in volume.

A drop-in tariffs and a hike in the interest rate by the central bank in the US may make the dollar stronger, and this could erode the value of the kip.

Any depreciation in the value of the kip could pose problems for the Bank of the Lao PDR in exchange rate management, and put pressure on foreign currency reserves.

Laos is coping with the challenges in global political and trade issues, but the CMER predicted that the country’s GDP growth will increase only slightly to 6.7 percent in 2019 and to 6.9 percent in 2020.

The main sectors expected to drive growth are electricity, construction and services, according to the CMER.

In the electricity sector, more hydropower plants are expected to begin commercial operations ahead of schedule, while the Laos-China railway and the Vientiane-Vangvieng expressway will boost the construction sector. The services sector will develop because of wholesale and retail trade and tourism.

In 2018, Laos’ GDP growth of about 6.5 percent was high compared to other countries in the region, but there was a slowdown compared to 2017.

Growth in industry dropped from 11.6 percent in 2017 to 7.7 percent in 2018, while growth in agriculture decreased from 2.9 percent to 2.5 percent. In contrast, the growth rate in the services sector increased from 4.4 percent to 7.6 percent.

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