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SCB EIC expects CLMV economic growth in 2025 to slow down slightly, in line with the global economic slowdown. Domestic demand will help mitigate the external impact

CLMV economies face risks from US policy uncertainty and potential trade protectionism



SCB EIC anticipates CLMV economies in 2025 to slow down sligthly, in line with the global economic slowdown.
This is due to both direct and indirect impacts of Trump 2.0 policies, such as higher US tariffs on imports from China and other countries, leading to an influx of cheap Chinese goods in CLMV markets as a substitute for the US market. Additionally, major central banks are expected to lower their policy rates less than previously anticipated due to rising inflationary pressures. Heightened uncertainties in global economic policies and geopolitics further weigh on growth prospects.

However, domestic demand within CLMV is likely to improve, driven by rising employment, which will help ease some impacts from weaker external demand. Furthermore, the resilient growth in ASEAN economies will support expansion of the tourism sector in CLMV. Additionally, CLMV economies will benefit from multinational companies relocating production bases to mitigate geopolitical risks and avoid potential increases in US import tariffs, which will positively impact foreign direct investment (FDI) and exports in the medium-term.

In 2025, SCB EIC projects Cambodia’s economy to grow by 6.0% (stable from 2024), Lao PDR by 4.3% (down from 4.5% in 2024), Myanmar by 2.2% (down from 2.3% in 2024), and Vietnam by 6.5% (down from 6.8% in 2024).


Country-specific factors are critical in shaping economic prospects

Vietnam is expected to achieve the strongest growth among the CLMV countries, benefiting significantly from the ongoing trend of production base relocation to the ASEAN region. This is supported by its well-developed domestic supply chains, particularly in the electronics sector, close distance to the Chinese market, a robust domestic market, competitive production costs, and various free trade agreements.

Cambodia is likely to be the second-best performer, with growth driven by the recovery of the tourism sector, which bolsters its labor market. Additionally, fiscal stability remains sound, enabling further fiscal stimulus if needed. However, China’s economic slowdown poses downside risks to Cambodian economy due to high dependence on China in multiple sectors.

Lao PDR remains highly vulnerable despite benefiting from regional demand within ASEAN. The country’s fiscal and external stability remains fragile, marked by a weak kip, high inflation, low foreign reserves, and rising borrowing costs following its speculative credit rating. These challenges will continue to weigh on its economic growth potential.

Myanmar’s economic growth is expected to remain subdued, reflecting sluggish economic activity amidst unresolved violence and instability. Western sanctions have further weakened external demand, and the outlook is compounded by other challenges such as a depreciating kyat, accelerating inflation, and production input shortages caused by supply chain and trade disruptions.

 

CLMV economies face multiple downside risks

The CLMV economies will face multiple downside risks, including the high uncertainty surrounding US economic policies. Trade protectionism measures could impact more countries beyond what Trump had proposed during his election campaign, particularly Vietnam, which has a substantial trade surplus with the US.

Furthermore, the US dollar may strengthen due to global economic and geopolitical uncertainties, as well as terminal interest rates in major economies being higher than previously anticipated. This development will exert greater depreciation pressure on CLMV currencies, slowing the disinflation progress and increasing public debt in some countries that rely heavily on foreign borrowing, particularly in USD.

At the same time, the high levels of non-performing loans (NPLs) in some countries could limit commercial banks' lending capacity, posing risks to domestic financial stability and putting additional pressures on domestic investment.

Finally, climate change should be considered as another key risk factor to monitor, as it may affect agricultural output and damage the overall economy. The CLMV region is among the most vulnerable countries globally to climate change.

 

Trade and investment between Thailand and CLMV are expected to grow gradually in 2025

Trade between Thailand and the CLMV region is projected to expand gradually in 2025, supported by overall economic growth among CLMV countries, improving domestic demand, and the recovery of Thai-Myanmar border trade.

Thai direct investment in the CLMV region is also expected to increase gradually in 2025. Key drivers include the anticipated decline in policy interest rates in Thailand and globally compared to 2024, as well as an improved business environment.

In the medium term, SCB EIC views the CLMV economies as a region with outstanding growth potential and attractiveness for Thai businesses to expand markets abroad, particularly within the ASEAN region. Additionally, the CLMV region offers opportunities for diversifying production bases to reduce costs and benefit from various free trade agreements.


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