Laos Economic Outlook
Following an acceleration in GDP growth in 2022 spurred by looser Covid-19 restrictions and increased traffic via the Laos-China railway, growth prospects are precarious this year. Rising public debt—already projected by the IMF to have reached over 120% of GDP at the end of 2022—and FX shortages will have constrained economic activity. On top of this, inflation averaged over 35% in January-August, FX scarcity persists, and the currency continues to depreciate. These factors have exacerbated the country’s cost-of-living crisis and likely strained private spending. More positively, in late August, a meeting between business operators was held in Vientiane to strengthen trade ties with China and encourage investment in Laos.
Inflation fell to 25.9% in August (July: 27.8%), largely on a high base effect. Our panel expects inflation to decline further in what remains of 2023. However, the depreciation of the kip and low foreign reserves will continue to fuel price pressures. The El Niño weather pattern stoking food prices poses an upside risk.