GREATER MEKONG ECONOMIC OUTLOOK - 2020 | H2 - AUSCHAM CAMBODIA
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2020 | H2 Greater Mekong Economic Outlook Cambodia | Lao | Myanmar | Thailand | Vietnam
Feature note | Mapping the COVID-19 outbreak in the Mekong 3
Cambodia | Double whammy in 2020 9
Lao PDR | Growth hits a speed bump 11
Myanmar | Challenging times ahead 13
Thailand | An inevitable recession 15
Vietnam | Re-opening for business 17
Contacts 19
Important Notice 20
Published 20 May 2020
Feedback and enquiries: research@anz.com | Twitter: @ANZ_Research
This is not personal advice. It does not consider your objectives or circumstances.
Please refer to the Important Notice.Feature note
Mapping the COVID-19 outbreak in the Mekong
The COVID-19 outbreak in the Greater Mekong region has been well contained, thanks
to proactive measures taken by governments. The economic impact domestically from
disease containment measures is small compared to the effects from the deepest global
recession since the 1930s, called “the Great Lockdown” by the IMF. Policy support has
been forthcoming but is still insufficient to offset the massive slump in demand due to a
decline in international trade, tourism and FDI flows. Additionally, stimulus sizes differ
notably across the Mekong economies, making the prospects of the eventual recovery
potentially lopsided. We have revised lower our economic forecasts for the region,
expecting growth to fall to historic lows in 2020, with a modest rebound in 2021.
The COVID-19 pandemic is set to cause the worst global recession since the Great Depression
of the 1930s. Large swathes of the global economy had been put into what the International
Monetary Fund (IMF) calls “the Great Lockdown”, halting economic activity. Although some
countries are starting to lift restrictions, the economic repercussions will linger for some time.
COVID-19 in Greater Mekong
Within the Greater Mekong, the number of confirmed cases has been modest compared to
other ASEAN countries. At the time of writing, Thailand has the highest number in the Mekong
at 3,033, but this is still less than half that of Malaysia, and significantly less than the 28,794
cases in Singapore. The total number of cases in Cambodia, Laos, Myanmar, and Vietnam
(CLMV) stood at 658 (Figure1).
Cambodia’s COVID-19 cases were in the single digits until mid-March, when they spiked
briefly. There have been no new cases since 11 April, according to official data, pointing to a
flattening of the epidemic curve. However, nearly six provinces continue to send suspected
samples on a daily basis. Lao PDR has the lowest number of cases in the Greater Mekong,
with no new infections since 13 April. Myanmar witnessed a steady increase in its case count
at the end of March, although the number of new cases has fallen significantly since late-April.
Vietnam’s COVID-19 cases began rising rapidly in early March, leading its Mekong neighbours
by two weeks. However, they started to decrease by the end of the month, with small
additions since April. This underlines the ‘flattening of the curve’ in Vietnam as well. Thailand
saw a sharp rise in cases in late March, but has managed to contain the outbreak since mid-
April. Its new daily case counts are still in the single digits.
All in all, the COVID-19 outbreak has been contained in the Greater Mekong. We also note that
the region’s case fatality rate of 1.7% is substantially lower than the global average of 6.7%.
Figure 1. COVID-19 outbreak in the greater Mekong region
ANZ Greater Mekong Outlook | 20 May 2020 3Feature note
Policy response and aid
The Mekong governments have taken proactive measures to contain the spread of the
coronavirus. Recent research at Oxford University measures how prohibitive such
containment strategies have been along seven different parameters, which are then
combined into a single Stringency Index for each country (Figure 2). Vietnam was clearly the
early responder in implementing a strict containment strategy, while other countries
subsequently tightened measures in March when their respective epidemic curves started to
steepen.
However, Laos and Vietnam have begun easing their restrictions recently while Myanmar has
maintained them since mid-April. In Thailand, a gradual reopening of the economy has been
underway since 3 May, with ‘low risk’ businesses opening first. Yet, its overall containment
strategy remains fairly strict on the Stringency Index. Although Cambodia’s position on the
index is not available, the country has kept most restrictions implemented in mid-March,
such as the closure of public spaces and restrictions on large gatherings, while the inter-
provincial travel ban was lifted on 16 April.
Figure 2. Stringency of COVID-19 containment response in Greater Mekong
The containment responses have also been buttressed with policy support, macro-financial
measures, and aid/loans from multilateral institutions. Figure 3 summaries the measures
announced across the Greater Mekong region so far. The magnitude of stimulus plans varies
notably among the Mekong economies, ranging from less than 0.1% of GDP in Lao PDR to 10%
of GDP in Vietnam and 16% of GDP in Thailand. On the fiscal front, both spending and non-
spending measures have been deployed to calibrate support to firms and households. Tax
concessions, budget spending reallocation, utility bill waivers, income support, direct transfers,
and moratorium on social security contributions feature prominently on the list.
On the monetary front, the region’s central banks have undertaken numerous steps to ensure
sufficient liquidity. Noteworthy ones include outright policy rate cuts, reduction in reserve
requirement ratios, temporary revisions in liquidity coverage ratios, and subsidised credit
support to household and affected businesses. On the macro-financial policy front, the
deadlines for banks to comply with certain regulatory norms have been relaxed in a few
economies, alongside proposals to restructure banks’ loan portfolio affected by the pandemic.
Myanmar is also looking at monetising its fiscal deficit and setting up an asset management
company to deal with stressed assets in the banking industry.
Aid from multilateral development institutions has also been forthcoming for the region. In
addition to the World Bank support, the Asian Development Bank has tripled its overall
COVID-19 support package to USD20bn. Some Mekong economies have received help from
other countries as well, both in the form of direct monetary aid and assistance with medical
supplies.
ANZ Greater Mekong Outlook | 20 May 2020 4Feature note
Figure 3. Policy measures taken in Greater Mekong to battle COVID-19
Cambodia Lao PDR Myanmar Vietnam Thailand
package
USD2.1bn USD3.4mn ~USD2bn# USD26.2bn USD82.5bn
Total
% of GDP=7.8% % of GDP=Feature note
Measuring the economic costs
In a previous note, we argued that the downturn in global trade and tourism due to the
COVID-19 will pose a substantial drag on the Greater Mekong’s growth momentum. In
addition, a slump in domestic demand due to containment measures will also hurt growth.
On the external trade front, we find that Greater Mekong exports are closely tied to the
global business cycle (Figure 4). The elasticity between Greater Mekong exports and world
industrial production (IP) is quite high, estimated to be in the range of 3-4.5. This implies
that a 1% decline in world IP leads to an average 4% decline in Greater Mekong exports,
everything else constant. Therefore, a 3% contraction in world GDP in 2020, as forecast by
the IMF, could induce an 18% decline in Greater Mekong exports1, according to our
estimates. Such a trade downturn in the region is comparable to the slump witnessed
during the global financial crisis in 2009.
The record dip in the annual growth of the number of goods-carrying vessels (a leading
indicator of global trade) indeed warns of the deep contraction in trade mentioned above
(Figure 5). Among the Mekong economies, the largest impact will be felt by Vietnam,
whose export-to-GDP ratio is nearly 100%, followed by Thailand, Cambodia, Lao PDR and
Myanmar.
Figure 4. Greater Mekong exports and world growth Figure 5. Global trade stifled
3
International tourism is the other major casualty of the pandemic. The World Tourism
Organisation notes that the global tourism sector has come to a grinding halt, since all
countries have implemented travel restrictions in some form. Consequently, the global
tourist flow is estimated to fall 60-80% in 2020, jeopardising 100-120 million jobs which
are directly dependent on tourism. By March, global tourist flows had already contracted
57% y/y; Asia Pacific was the world’s worst hit region (Figure 6).
In Greater Mekong, tourism is a booming industry of significant economic importance. As of
2018, the region accounted for roughly 4.7% of the world’s total tourist flows, which far
exceeds its 1% share in world GDP. Cambodia is the Mekong economy most vulnerable to
the drop-off in foreign tourist arrivals, as its travel services exports-to-GDP ratio is the
highest, followed by Thailand, Vietnam, Lao PDR, and Myanmar (Figure 7).
1
The coefficient of sensitivity between world GDP and IP growth is found to be 1.5. Therefore, -3% y/y world GDP growth
is equivalent to -3%*1.5 = -4.5% of world IP growth. Therefore, the % impact on CLMV exports = -4.5%*4=~(-)18%.
ANZ Greater Mekong Outlook | 20 May 2020 6Feature note
Figure 6. Global tourist flows more than halved Figure 7. Importance of international tourism for
Greater Mekong
180
160 Middle east
140
Africa
120
Million tourists
100
Americas
80
60
Asia pacific
40 -57% y/y
20 Europe
0
%
Jun
Sep
Dec
Jul
Apr
Aug
Oct
-40 -30 -20 -10 0
Jan
May
Mar
Nov
Feb
2019 2020 2020 YTD change by region, %
Source:World Tourism Organisation, ANZ Research
The heightened economic uncertainty engendered by COVID-19 can further dry up the global
foreign direct investment inflows, which were already under duress due to the US-China
trade dispute and geopolitical tensions (Figure 8). Within Greater Mekong, the CLMV sub-
group, comprising Cambodia, Lao PDR, Myanmar, and Vietnam, has benefitted immensely
from FDI inflows. Not only has FDI been an important source of external finance, it plays a
crucial crucial in augmenting the novel production capacity in the region. However, given the
variations in economic shares of FDI, as well as its key sources and sectors, we expect the
negative impact of the overall slowdown in FDI to vary considerably across the economies in
the Mekong region (Figure 9).
Figure 8. Economic uncertainty and global FDI Figure 9. FDI in Greater Mekong
Lastly, the inevitable impact on domestic demand from virus containment measures will
be fully captured in the GDP data, but with a significant lag. We therefore employ some
coincident indicators of activity, such as daily Google mobility reports to get a sense of the
situation on a real-time basis.
During the month of March, movement restrictions and lockdown conditions were
progressively tightened across the Greater Mekong region. By mid-April, mobility around
transit stations and workplaces fell as much as 50-70% below their baselines, bringing
economic activity to a standstill. However, since then, some progress has been made, most
notably in Vietnam. Increasing mobility around transit stations and workplaces suggests
that domestic economic activity in Vietnam is on course to normalise much sooner than for
the rest. This is in line with its position on the Stringency Index, where Vietnam is seen
relaxing its restrictions faster than the others.
ANZ Greater Mekong Outlook | 20 May 2020 7Feature note
Figure 10. Mobility at transit stations Figure 11. Mobility at workplaces
Bottom line
Based on our analysis of growth risks to the Greater Mekong region, we believe that Cambodia
faces the most severe challenges overall, followed by Thailand, Vietnam, Lao PDR, and Myanmar
(Figure 12). While policy stimulus in each economy will certainly help, it is still insufficient to
offset the enormous demand destruction caused by the pandemic, both on the domestic and
external fronts. We have accordingly revised our macroeconomic forecasts for the region, as
detailed in the country sections that follow. In all, our forecast revisions entail that economic
growth in the Greater Mekong will contract 0.8% in 2020, mainly as Thailand’s economic growth
is expected to contract by 3.5%. Excluding Thailand, growth in the CLMV economies is set to
drop to 3%. Although we expect a recovery in 2021, much of it remains contingent on the pace
of normalisation of economic activity worldwide. A second wave of infections, domestically or
abroad, will also pose downside risks to our views.
Figure 12. Greater Mekong: growth risk-rank map Figure 13. Greater Mekong growth setback in 2020
Trade drag 8
5
Weighted average real GDP growth
7
4
6
3
5
2
4
(%y/y)
1
3
Domestic demand drag 0 Tourism drag
2
1
0
-1
2012 2013 2014 2015 2016 2017 2018 2019e 2020f 2021f
FDI drag Greater Mekong Greater Mekong exc. Thailand (CLMV)
Cambodia Lao PDR Myanmar Vietnam Thailand
Source: Macrobond, Google, ANZ Research Source: Macrobond, ANZ Research
Trade drag measured by goods export to GDP, tourism drag by Real GDP growth rates weighted using nominal USD denominated
travel services exports to GDP, FDI drag by FDI inflows to GDP, and GDP shares, last uniformly available for all from the IMF.
Domestic demand drag by average transit and workplace mobility
(% below baseline). Lower rank implies larger drag.
ANZ Greater Mekong Outlook | 20 May 2020 8Cambodia
Double whammy in 2020
The risks from being partially removed from the EU's preferential trade agreement and
heightened global and domestic challenges in the wake of COVID-19 will trim
Cambodia's GDP growth to 2% in 2020. But we expect a rebound to 5.5% in 2021 as
the services sector recover.
Inflation is expected to be subdued in both 2020 and 2021 amid weaker growth
prospects and subdued commodity prices.
Slower revenue collection and increased spending (including on healthcare) will lead to
a budget deficit in 2020 from a possible surplus in 2019. Decreased tourism receipts
and weaker export growth will see the current account deficit rise to 18.6% of GDP in
2020.
Macroeconomic outlook
After averaging close to 7% GDP growth per annum in the last five years, we forecast
Cambodia’s growth to fall sharply to 2% in 2020 mainly due to coronavirus-related disruptions
on the domestic economy and subdued exports amid the global slowdown. The lockdown
imposed in April and social distancing protocols thereafter, are causing wide-reaching impact on
the services, construction and manufacturing sectors. Indeed, services will face the largest
impact, given the fall in tourist receipts (tourism constitutes 16% of GDP growth). Industry
growth will also decelerate as a global recession looms over Cambodia’s key export partners,
especially the EU (30% of all exports in 2019) and the US (29%). In addition, droughty weather
forecasts and the government’s directive to plant only one crop of rice during the dry season this
year to avert water shortages will cause agricultural growth to remain subdued at 0.8%.
Another growth headwind is the partial suspension of Cambodia from the EU’s preferential
Everything But Arms (EBA) Agreement, to be effective from 12 August 2020, unless there are
objections from the European Parliament and Council. Exports make up roughly 60% of
Cambodia’s economy, with the EU being its biggest export partner. In 2018, 95% of Cambodia’s
exports entered the EU via EBA tariff preferences. The new tariffs are expected to impact
roughly 20% of Cambodia’s exports to the EU (EUR1bn) and will impact certain garment and
footwear products, all travel goods, and sugar. Although a partial rather than a complete
suspension will help trim the loss, it is nonetheless a disruptive force on the nation’s exports.
Cambodia can be fully reinstated into the EBA if it exhibits improvements in democracy and
human rights, which the EU has said it will continue to monitor.
We expect growth to rebound to 5.5% in 2021 as coronavirus-related risks subside and the
services sector recovers. Inflation is well contained and is expected to remain subdued both this
year and next due to weak growth, contained food prices, and subdued commodity prices.
A fall in export growth and the decline in tourism revenues will likely see the current account
deficit rise to 18.6% of GDP in 2020. This is expected to modestly improve in 2021 as export
growth regains momentum.
Slower revenue collection amid weaker growth and increased spending on anti-virus campaigns
as well as tax reliefs to the export sectors to offset the impact from the suspension of EBA trade
preferences will keep the pressure on the fiscal budget in 2020. However, public external debt is
still relatively contained at below 30%, which mitigates default risks from higher borrowings.
Monetary levers have also been deployed to counter the impact from the crisis, including rate cuts
and liquidity enhancement measures such as lower reserve requirements. In addition, the National
Bank of Cambodia has been making concerted efforts recently to encourage more transactions in
the KHR to encourage de-dollarisation. Although it could prove destabilising in the short term, if
carried out with caution, this will be a reform which will prove to be fruitful in the longer term,
helping to combat the adverse effects of inflation, vulnerability to outflows, and restore confidence
in the economy and the currency.
ANZ Greater Mekong Outlook | 20 May 2020 9Cambodia
Figure 1. GDP growth will stumble in 2020 Figure 2. CPI to remain range-bound in 2020
Figure 3. Tourist arrivals slumped in early 2020 Figure 4. Mobility for basic tasks show marginal
improvement in May
Cambodia’s key forecasts
2015 2016 2017 2018 2019e 2020f 2021f
Real GDP growth (%) 7.0 7.0 7.0 7.5 7.1 2.0 5.5
- Agriculture (%) 0.2 1.3 1.7 1.1 -0.5 0.8 1.8
- Industry (%) 9.7 7.7 7.1 9.5 9.0 2.5 6.0
- Construction (%) 19.2 21.8 18.0 18.1 17.0 4.5 9.8
- Services (%) 7.1 6.8 7.0 6.8 6.2 1.8 5.5
- Taxes less Subsidies (%) 8.5 8.1 8.8 8.7 7.8 3.0 6.0
CPI Inflation (%) 1.2 3.0 2.9 2.5 1.9 1.9 2.1
GDP deflator (%) 1.3 3.4 3.3 3.0 2.1 2.1 2.1
Current Account Balance (USDbn) -1.6 -1.7 -1.8 -3.0 -4.7 -5.1 -4.9
- As % of GDP -8.8 -8.6 -8.1 -12.2 -17.6 -18.6 -16.5
Overall Budget Balance (KHRbn) -1909 -244 -808 697 5766 -3171 -2441
- As % of GDP -2.6 -0.3 -0.9 0.7 5.3 -2.8 -2.0
USD/KHR (end of period) 4,050 4,070 4,033 4,040 4,070 4,100 4,100
Avg saving deposit rate (%) 1.43 1.56 1.39 1.17 0.60 0.50 0.50
Source: IMF, ADB, World Bank, CEIC, Macrobond, ANZ Research
ANZ Greater Mekong Outlook | 20 May 2020 10Lao PDR
Growth hits a speed bump
We forecast Lao PDR’s GDP growth to slow further to 3% in 2020 owing to coronavirus-
related economic disruptions. However, a recovery to 5.6% next year is likely, as the
services sector rebounds and electricity production capacity is enhanced.
Inflation is expected to average 4% in 2020 on higher food costs as well as higher
imported inflation due to a weaker kip. Inflation will likely stay elevated at 4.2% in 2021.
Growth weakness in export destinations will continue to keep the current account deficit
high in 2020. Meanwhile, economic rebuild post climate change related disasters will keep
up the challenge on the fiscal side.
Macroeconomic outlook
We now expect GDP growth to further slow to 3% in 2020 from the 5% growth rate estimated
for 2019, due to COVID-19 related disruptions. While Lao PDR has been relatively immune to the
outbreak (with a total of 19 infections and zero deaths reported as of 18 May), the lockdown and
social gathering restrictions implemented since 1 April are likely to have severely impacted
activity. Even though restrictions have been partly eased from 4 May, it can take months for the
economy to return to normalcy as social distancing rules persist. The services sector, which
contributes more than 45% of gross value added, will take the biggest hit, including segments
like tourism and retail trade. Industry, especially construction-related and agriculture (provided
there are minimum weather-related disruptions) will help offset a slowdown in H2 2020.
We estimate GDP growth to bounce to 5.6% in 2021 as services growth recovers. In addition,
capacity production for electricity will continue to be ramped up, especially in hydropower
generation and exports, which will be growth accretive. Electricity exports have risen with a
CAGR of 14% during September 2014-2019.
Inflation, which has risen sharply in the last six months on higher food prices, will likely stay
elevated for the rest of the year. We forecast prices to average 4% this year, due to higher food
and transportation costs. It is likely to remain high in 2021 as a weaker kip vis-à-vis USD and
THB will keep imported inflation on the costlier side.
A combination of 1) weaker growth prospects in export destination markets; 2) a slump in
tourism revenue; and 3) continued deficit in primary income account on repatriation of
dividends will keep the current account deficit wide at 6.7% of GDP in 2020. It is expected to
widen further to 7.2% of GDP in 2021 as a revival in economic activity also increases the need
for higher imports, especially of capital goods and equipment for hydrocarbon and
infrastructure-related projects (the ‘China-Laos’ Railway project under the Belt and Road
Initiative is expected to near completion in 2021).
Slower GDP growth will have a bearing on Lao PDR’s fiscal position, which has remained under
strain owing to the economic re-build following climate-related challenges in the last two years.
Agricultural damage to the tune of USD371m and USD380m (~2% of GDP) were caused due
to weather-related disruptions in 2018 and 2019 respectively, as estimated by the Asian
Development Bank. In addition, slower revenue collection meant that the fiscal deficit inched
up to 5% of GDP in 2019. We expect the fiscal deficit to worsen to 5.9% of GDP in 2020 due to
weaker tax collections, higher outlays on wages and benefits, and high infrastructure spending.
So far, the government has announced USD13.3m (~0.1% of GDP) of direct fund allocation
and USD18m in foreign aid by the World Bank to meet COVID-19 risks.
On the monetary side, although persistent kip depreciation versus both the USD and THB will
remain a concern, other policy measures will continue to lend support to the economy. Policy rate
across various tenors was lowered by 100bps in March, bringing the short term lending rate to 3%
in the aftermath of the COVID-19 outbreak. We expect more easing in the near term as
policymakers deploy both fiscal and monetary tools to help the economy recover.
This risk of high indebtedness was flagged by the International Monetary Fund (IMF) in August
this year. In addition, higher government spending for flood relief will push out fiscal
consolidation by a year, with the budget deficit widening to 5.1% of GDP. The high twin deficits
will continue to restrict overall growth.
ANZ Greater Mekong Outlook | 20 May 2020 11Lao PDR
Figure 1. GDP growth to slump in 2020 Figure 2. Inflation is ticking up due to food
Figure 3. Crucial for electricity exports to revive Figure 4. Basic balance is deteriorating
Lao’s key forecasts
2015 2016 2017 2018 2019e 2020f 2021f
Real GDP growth (%) 7.3 7.0 6.9 6.2 5.0 3.0 5.6
- Agriculture (%) 3.6 2.8 2.9 1.3 -0.2 1.0 2.9
- Industry (%) 4.2 12.9 10.2 4.2 3.8 3.2 5.6
- Construction (%) 20.7 8.4 18.0 22.6 6.4 5.1 7.7
- Services (%) 8.0 4.7 4.5 6.8 7.2 3.0 6.1
- Taxes less Subsidies (%) 11.5 7.8 7.0 6.2 6.5 4.0 5.5
CPI Inflation (%) 1.3 1.6 0.8 2.0 3.3 4.0 4.2
GDP deflator (%) 2.3 3.0 1.9 1.9 2.6 3.3 3.6
Current Account Balance (USDbn) -2.3 -1.4 -1.3 -1.4 -0.9 -1.3 -1.5
- As % of GDP -15.7 -8.7 -7.4 -7.9 -4.5 -6.7 -7.2
Overall Budget Balance (LAKbn) -6953 -6662 -7811 -7108 -8209 -10311 -10452
- As % of GDP -5.9 -5.2 -5.5 -4.7 -5.0 -5.9 -5.5
USD/LAK (end of period) 8,148 8,184 8,293 8,545 8,885 9,050 9,150
ST lending rate (end of period) 4.50 4.25 4.00 4.00 4.00 2.00 3.00
Source: IMF, ADB, World Bank, CEIC, Macrobond, ANZ Research
ANZ Greater Mekong Outlook | 20 May 2020 12Myanmar
Challenging times ahead
We expect GDP growth to weaken to 2.1% in 2020 largely due to the impact of COVID-19.
We forecast a rebound to 6.0% in 2021 buoyed by prospects of major infrastructure projects.
Inflation is set to ease in 2020. However, food prices, which have a large weight in the CPI
basket, are likely to rise on the back of a prolonged drought.
Weaker exports and tourist receipts will lead to a deterioration in the current account deficit.
The relatively modest stimulus measures announced so far are unlikely to provide a
significant cushion against the slowdown.
Macroeconomic outlook
We forecast Myanmar’s GDP growth to fall sharply to 2.1% in 2020 from 6.8% in 2019.
Disruptions associated with social distancing will hamper domestic growth even as a
contraction in global growth weighs on the external sector. The addition of Myanmar to the
list of states that pose a high risk to the EU’s financial system (effective 1 October 2020) and
upcoming domestic elections in November add to the overall uncertainty.
The economic impact of social distancing measures remains uncertain. Despite
recommending increasingly stringent social distancing guidelines, Myanmar has stopped
short of imposing a nationwide lockdown like some of its neighbours in Asia. Although only
193 cases of COVID-19 so far, this is at least partly a result of a low testing rate of 268 per
million as of mid-May. In contrast, Vietnam has a testing rate over 10 times as high during
the same period.
Although the economic dataflow for 2020 remains scarce, anecdotal data can provide some
insights. The Labour Ministry reported that more than 60,000 workers have lost their jobs as
150 factories were forced to shut down amid supply chain disruptions. Myanmar’s
manufacturing PMI has been in contractionary territory since February, falling to an all-time
low of 29.0 in April. Disruptions to the garment sector, which accounts for 13% of the
country’s total exports, will be particularly painful. Services activity is also expected to
contract, reflecting the slowdown in tourist arrivals and the associated impact on
accommodation, food, and retail businesses. Although the direct contribution to GDP from
tourist receipts is modest, a 23% y/y increase in tourist arrivals in 2019 had provided a
meaningful boost to the services sector. Finally, agricultural production is also expected to
decline amid ongoing drought-like conditions and the disruption to planting due to the
pandemic.
Looking forward, we expect growth to recover to 6.0% in 2021, as the hangover from the
pandemic begins to fade and large planned infrastructure projects commence. Slower growth
in China remains the key medium term risk to growth, as it accounts for more than 30% of
Myanmar’s exports, 15% of FDI, and 20% of tourist arrivals.
Following the one-time jump in electricity costs last year, inflation declined to 6.6% y/y in
March this year. We expect inflation to average 5.9% in 2020, consistent with subdued
demand and low oil prices. However, we note that a sustained drought could result in higher-
than-expected food inflation. Food and beverages make up 58.5% of the CPI basket.
The government announced an economic stimulus package in late April, amounting to
USD2.0bn (~2.6% of GDP). Although the detailed breakdown is not yet available, the
package reportedly includes expanded emergency funding for SMEs in the garment and
tourism sectors as well as cash transfers, food rations, and electricity tariff waivers for
eligible households. Swift implementation of the above stimulus will be crucial. However, this
will likely be challenging not least because of the high proportion of households with no
access to a bank account. At the same time, the central bank has also reduced its reserve
ratio requirement and relaxed certain regulatory requirements to bolster lending activity.
Reportedly, the central bank may also seek to monetise the fiscal push. Although this has
been associated with spurts of inflation in the past, in the current environment, it is arguably
a necessary policy response to support growth.
ANZ Greater Mekong Outlook | 20 May 2020 13Myanmar
Figure 1. Pandemic to weigh on growth in 2020 Figure 2. Inflation is trending lower in 2020
Figure 3. PMI points to lower export growth Figure 4. Activity remains constrained in May
Myanmar’s key forecasts
2015 2016 2017 2018 2019 2020f 2021f
Real GDP growth (%) 8.0 7.0 5.9 6.4 6.8 2.1 6.0
- Agriculture (%) 2.8 3.4 -0.5 0.1 1.6 1.0 1.9
- Industry (%) 12.1 8.3 8.9 8.3 8.4 2.2 7.5
- Services (%) 9.1 8.7 8.1 8.7 8.3 2.6 6.8
CPI Inflation (%) 10.2 6.9 4.6 6.9 8.8 5.9 6.5
GDP deflator (%) 9.7 6.7 4.8 6.6 8.5 5.7 6.4
Current Account Balance (USDbn) -2.8 -1.8 -4.5 -2.1 -1.9 -3.8 -3.5
- As % of GDP -4.8 -2.8 -6.8 -3.0 -2.6 -4.0 -3.7
Overall Budget Balance (MMKbn) -782 -3,005 -1,893 -3,171 -4,303 -6,791 -7,340
- As % of GDP -1.1 -3.8 -2.0 -3.0 -3.5 -4.9 -4.6
USD/MMK (end of period) 1,310 1,358 1,362 1,534 1,477 1,500 1,600
Source: Bloomberg, Macrobond, CEIC, ANZ Research
ANZ Greater Mekong Outlook | 20 May 2020 14Thailand
An inevitable recession
The combination of risks from COVID-19 related disruptions and a severe drought will
compound growth headwinds in 2020.
This will also amplify deflationary risks. We forecast headline inflation to contract 0.5% in 2020.
Prices will moderately recover in 2021 as growth rebounds.
Fiscal and monetary policy are at the forefront of fighting the current economic crisis. Yet,
a recession this year is inevitable.
Macroeconomic outlook
We maintain our forecast for Thailand’s economy to contract by 3.5% in 2020 after a 2.4%
expansion in 2019. GDP declined 1.8% in Q1, with sub-par performance in external demand.
Various indicators, alongside the stringency of social containment policies, suggest that growth
has weakened further in Q2. The business sentiment index slumped to an all-time low of 32.6
in April, consumer confidence surveys sank to rock-bottom, and the manufacturing PMI
contracted to a record-low of 36.8. Meanwhile, the tourism sector continues to be hit hard by
the ban on incoming flights, which was extended till 31 May. Tourist arrivals had already
declined 76.4% y/y in March. We estimate that if incoming tourists tumbled by 50% in 2020,
headline GDP growth will slump to -5.6%. It is highly possible that tourism flows will not
recover in the near term.
In addition, export growth will take a blow as global growth is estimated to contract 3% this
year. While customs export growth has held up in Q1, it is expected to be weaker in Q2 and Q3
due to a slump in demand from key export markets. Lastly, a non-virus related headwind that
has emerged is the drought which is expected to last until July, posing a drag on agricultural
output and incomes. The agricultural industry generates 30% of Thailand’s employment. Local
reports suggest that water shortages have already impacted the country’s sugar and rice
production.
All in all, this unusually challenging growth environment also risks morphing into deflation.
Headline CPI contracted for the second consecutive month in April; core CPI is also inching
lower. We forecast this trend to persist in the coming months, with overall inflation averaging -
0.5% in 2020. Inflation is expected to pick up to modest levels in 2021 as growth rebounds.
Policymakers have deployed both monetary and fiscal to offset the effects of the pandemic.
Including the third stimulus package announced in April (called Phase 3), total COVID-19
related fiscal support stands at USD82.5bn, or 15.6% of GDP. This includes THB1trn of bond
issuance to shore up the economy and THB900bn from the central bank in the form of soft
loans to small and medium enterprises and a managed corporate bond fund to keep liquidity
flush. In addition, the Cabinet has also approved a bill for the redistribution of the THB3.2trn
budget (passed in February this year) to the House and Senate for approval when parliament
re-opens in June. It is expected that expenditure related to the budget will be trimmed and the
proceeds (~THB100bn) will be also expedited towards COVID-19 relief. Given the sharp
increase in expenditure than earlier anticipated, the fiscal deficit is expected to widen
significantly this year.
The Bank of Thailand (BoT) has cut the benchmark policy rate twice this year, to 0.75%. We
expect one more cut to 0.50%. However, given that the benchmark rate already stands quite
low, the central bank will likely continue to utilise other policy tools in its effort to support the
economy. The crux of this is to continue to ensure sufficient liquidity in the system — be it in
the bond market (commercial banks can now use investment grade bonds as collateral to
borrow from the central bank) or mutual funds. Unfortunately, the scale of the shock to growth
is such that despite all policy guns blazing, a recession looks inevitable this year.
We forecast that the hit from exports and services will likely narrow the current account
surplus to 3.4% of GDP in 2020. Current low oil prices are insufficient to offset the impact from
weaker revenues from the export of goods and services.
ANZ Greater Mekong Outlook | 20 May 2020 15Thailand
Figure 1. A looming recession Figure 2. Inflation has turned negative
Figure 3. Arrivals at Thailand’s airports have Figure 4. Despite a decrease in active cases,
plunged in 2020 general mobility is far from returning to normal
Thailand’s key forecasts
2015 2016 2017 2018 2019 2020f 2021f
Real GDP growth (%) 3.1 3.4 4.1 4.2 2.4 -3.5 4.0
- Private Consumption (%) 2.6 2.9 3.1 4.6 4.5 -1.0 2.5
- Public Consumption (%) 2.5 2.2 0.1 2.6 1.4 3.7 3.0
- Investment (%) 4.4 2.9 1.8 3.8 2.2 -0.3 3.6
- Inventories/errors (ppt contb.) -0.6 -1.8 2.2 3.5 -1.7 -0.1 0.2
- Exports (%) 1.3 2.7 5.2 3.3 -2.6 -13.3 9.5
- Imports (%) 0.0 -1.0 6.2 8.3 -4.4 -9.5 8.2
Headline Inflation (%) -0.9 0.2 0.7 1.1 0.7 -0.5 0.3
Core Inflation (%) 1.0 0.7 0.6 0.7 0.5 0.0 0.3
Current Account Balance (USD bn) 27.8 43.4 43.9 28.5 37.2 16.4 20.4
- As % of GDP 6.9 10.5 9.6 5.6 6.8 3.4 3.9
Overall Budget Balance (THB bn)* -394.4 -395.6 -536.5 -483.0 -503.0 -645.7 -577.5
- As % of GDP -2.9 -2.8 -3.5 -3.0 -3.0 -4.0 -3.5
USD/THB (end of period) 35.84 35.40 32.94 32.83 30.27 33.00 31.00
BoT Policy Rate (end of period) 1.50 1.50 1.50 1.75 1.25 0.50 0.50
Note: 2020f budget deficit numbers are under review following the fiscal announcements made in recent weeks.
* FY is for 1 October to 30 September
Source: Bloomberg, CEIC, TDRI, IMF, ANZ Research
ANZ Greater Mekong Outlook | 20 May 2020 16Vietnam
Reopening for business
Vietnam’s exposure to global trade and tourism as well as its anti-virus measures will see
growth slow to 3.3% in 2020. However, the latest data suggest a fairly successful re-opening
of the economy.
Inflation will remain subdued due to weaker growth prospects and lower crude oil prices.
The current account will likely shift into a deficit in 2020 before recovering next year. Based
on the fiscal stimulus announced, we expect the deficit to rise to 5.7% of GDP in 2020.
Macroeconomic outlook
Although Vietnam’s deep integration into the global economy over the last decade has generated
impressive growth rates, it has also made the economy susceptible to external shocks. With
exports accounting for nearly 100% of nominal GDP in 2019 and the fixed direct investment (FDI)
reliant manufacturing and construction sectors contributing 26% of employment, it is no surprise
that Q1 GDP slipped to 3.8% y/y amid the COVID-19 outbreak, marking its slowest pace since
2013. The slowdown was broad-based, with declines seen in all sectors.
Early indicators point to subdued activity in April due to ongoing travel restrictions, strict social
distancing rules, and weak external demand. For instance, industrial production in April was
11.4% lower than a year ago, while manufacturing PMI retreated to 32.7 from 41.9 in March, an
all-time low. Similarly, the new export orders index fell to 17.7, pointing to continued weakness
in external demand. On the services front, international tourist arrivals in April were 98% lower
than a year ago. The government is reportedly considering a partial re-opening of some
international air routes from 1 June. However, a return to the 2019 average of 1.5m visitor
arrivals every month is a distant prospect at the moment.
That said, there are still reasons to be optimistic. Firstly, Vietnam has reported 324 confirmed
COVID-19 cases so far and no deaths, a remarkable feat for a country which shares a long border
with China. This is in part thanks to its swift response, such as travel restrictions and school
closures as early as February. Consequently, Vietnam is also one of the first countries to re-open
its economy, lifting nationwide restrictions in April, after 22 days. Indeed, public transportation
services, including domestic flights, have already resumed across major cities. Secondly,
incoming FDI flows have hitherto remained resilient compared to last year. Sustained FDI flows
will be crucial for a recovery in manufacturing and construction activity. Lastly, Vietnam’s
relatively diverse exports and its participation in several Free Trade Agreements (FTA), most
recently the EU-Vietnam FTA, may help it navigate the turbulence in global trade.
Headline inflation fell to 2.93% in April amid the sharp plunge in global crude oil compared with
its peak at 6.43% y/y in January. Core inflation also decreased to 2.71% y/y from 3.25% during
the same period, signalling decreased demand. Based on these factors, we expect inflation to
remain contained through 2020. That said, the prices of certain food items may remain volatile.
We expect Vietnam’s current account to shift to a modest deficit of 1.1% of GDP in 2020, with
tourist receipts, exports, and FDI inflows under downward pressure. However, this may see a
reversal in the following year. On the fiscal front, the government’s deficit target of 3.4% in 2020
looks optimistic, in our view. Revenues will likely undershoot the target due to the hit to GDP.
Meanwhile, expenditures are set to rise as the government has announced stimulus worth ~10%
of GDP (cumulatively). The overall package includes direct cash handouts, tax concessions and
bill waivers which will impact the fiscal deficit, as well as moratoriums on interest payments
which would not. Overall, we expect the deficit to rise to 5.7% of GDP.
The State Bank of Vietnam (SBV) has also done its part, cutting its discount rate by a total of
100bps since March, in line with the fiscal push. We expect the central bank to pause and assess the
impact of the recent cuts. Given the marginal increases in new infections in recent weeks and
gradually re-opening of the economy, the central bank may choose to preserve its ammunition for
now, instead focusing on macroprudential measures to support lending.
ANZ Greater Mekong Outlook | 20 May 2020 17Vietnam
Figure 1. Broad-based slowdown in 2020 Figure 2. PMI points to near-term export weakness
Figure 3. FDI inflows remain resilient so far Figure 4. Activity is resuming across most categories
Vietnam’s key forecasts
2015 2016 2017 2018 2019 2020f 2021f
Real GDP growth (%) 6.7 6.2 6.8 7.1 7.0 3.3 7.4
- Agriculture (%) 2.4 1.4 2.9 3.8 2.0 1.5 2.5
- Industry (%) 9.4 7.1 7.8 8.8 8.9 4.5 9.0
- Construction (%) 10.8 10.0 8.7 9.2 9.1 3.0 9.0
- Services (%) 6.3 7.0 7.4 7.0 7.3 2.8 8.0
- Taxes less Subsidies (%) 5.5 6.4 6.3 6.1 6.5 4.5 6.0
CPI Inflation (%) 0.6 1.9 3.5 3.5 2.8 2.7 3.0
GDP deflator (%) -0.2 1.1 4.1 3.4 1.8 1.8 2.6
Current Account Balance (USDbn) -2.0 3.0 -1.7 5.8 13.1 -2.9 7.0
- As % of GDP -1.1 1.5 -0.7 2.4 5.1 -1.1 2.3
Overall Budget Balance (VNDtrn) -179 -161 -174 -204 -209 -362 -294
- As % of GDP -4.3 -3.6 -3.5 -3.7 -3.4 -5.7 -4.2
USD/VND (end of period) 22,485 22,761 22,698 23,175 23,173 23,500 23,540
Discount Rate (end of period) 4.50 4.50 4.25 4.25 4.00 3.00 3.00
Source: Bloomberg, Macrobond, CEIC, Ministry of Finance Vietnam, ADB, IMF, ANZ Research
ANZ Greater Mekong Outlook | 20 May 2020 18Contacts
ANZ Research
Khoon Goh Head of Asia Research Singapore Khoon.Goh@anz.com
Arun Navaratna Senior Economist Bengaluru Arun.Navaratna@anz.com
Rini Sen Economist Bengaluru Rini.Sen@anz.com
Mustafa Arif Economist Bengaluru Mustafa.Arif@anz.com
Dhiraj Nim FX Analyst Bengaluru Dhiraj.Nim@anz.com
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