Laos Economic Outlook
Economic momentum was likely weak in 2022 as several factors exerted downward pressure on activity. Floods and significantly weaker annual export growth in Q1–Q3 were a drag on output. Moreover, surging commodity prices and a sharp FX depreciation led to a cost-of-living crisis—inflation ended last year at 39.3%. Additionally, the pressure on growth was likely intensified by the Central Bank’s policy tightening in Q4. However, the economy will have been supported by the lifting of Covid-19 restrictions, increased electricity exports, reviving tourism and an increase in both freight and passenger transportation through the Laos-China railway. Turning to Q1 of this year, early signs are downbeat as inflation continued to accelerate, reaching 40.3% in January and boding poorly for business activity. In politics, the recent cabinet reshuffle is unlikely to bring major policy changes.
Inflation accelerated to 40.3% in January (December: 39.3%). Despite remaining in double-digit territory, price pressures are projected to approximately halve this year. A slightly stronger kip should also keep a lid on prices. Upside risks revolve around China’s reopening and its impact on commodity prices.