• CLMV growth in 2026 set to moderate. SCB EIC projects CLMV economic growth to moderate to 5.6% in 2026, down from 6.4% in 2025, reflecting the full-year impact of higher U.S. tariffs and softer  global growth.
  
  
• U.S. tariff pressures intensify. The full-year effect of elevated U.S. tariff rates, coupled with risks from transshipment and sector-specific tariffs, is expected to weigh on trade-dependent CLMV economies. These challenges are further compounded by potential  import flooding from China.
  
  
• Domestic resilience offers only partial support. While domestic demand provides some buffer, structural vulnerabilities persist. Rising NPL risks remain a key concern, with Lao PDR facing high debt burdens and currency volatility, and Cambodia and Myanmar  constrained by political uncertainty.
  
  
• Vietnam  continues to outperform. Vietnam’s growth remains relatively robust, underpinned by strong domestic consumption, resilient FDI inflows, and ongoing government reforms.
  
  
• Thailand’s regional trade and investment softens. Trade and investment flows are expected to moderate in 2026 amid weaker regional demand, heightened global trade uncertainty, and rising political risks. Selective opportunities remain in sectors leveraging  resource endowments, geographic advantages, and cost competitiveness.
  
  

Growth softens in 2026 amid external headwinds and structural risks

SCB EIC expects CLMV growth to slow to 5.6% in 2026, down from 6.4% in 2025, as higher U.S. tariffs weigh on export momentum and risks from transshipment and sectoral-specific tariff measures persist. A global economic slowdown is expected to further dampen external demand for goods and services. Despite a temporary U.S.–China trade deal, China’s continued reliance on manufacturing and exports raises risks of import flooding into the region, while some CLMV economies may also face additional pressure from increased inflows of U.S. products following the agreement.

Domestic demand will provide some cushion against external headwinds, but structural challenges remain. Private consumption and investment are likely to soften amid slower economic growth and heightening household vulnerability. Although currency and inflation stability have improved and foreign-exchange reserves remain adequate, financial-sector soundness is a concern as non-performing loans (NPLs) have risen since COVID-19 and are expected to stay elevated as restructuring measures fade.

Economic divergence within CLMV is becoming more pronounced. Vietnam continues to outperform, supported by relocation benefits, strong FDI inflows, and ongoing reforms, despite trade-policy uncertainty. In contrast, other economies face country-specific risks, including political unrest and election uncertainty in Myanmar, border tensions in Cambodia weighing on consumption and investment, and high external debt and currency volatility in Lao PDR.

In 2026, SCB EIC projects slower growth across CLMV economies (except Myanmar). Cambodia is expected to grow by 4.1% (down from 4.6% in 2025), Lao PDR by 4.0% (from 4.4%), Vietnam by 6.6% (from 8.0%), and Myanmar by 1.1% (from -0.5%).

Vietnam outperforms amid uneven recovery across other CLMV economies

Vietnam’s economy is expected to slow in 2026, as key growth drivers expand at a more moderate pace in line with softer global growth conditions. The slowdown will be driven primarily by exports, as the impact of U.S. tariffs becomes more pronounced and external downside risks increase. Nevertheless, Vietnam’s growth will remain relatively robust, supported by resilient FDI inflows, ongoing government support measures, and structural reforms. Tourism will continue to play a critical role in driving growth and employment, while accommodative fiscal and monetary policies will help cushion external shocks. However, downside risks have risen, particularly in the export sector, amid heightened global uncertainty.

Cambodia is projected to see growth moderation as exports—particularly to the U.S.—slow and competition from rising Chinese imports intensifies. Border tensions with Thailand are weighing on the economy through weaker investment sentiment, softer tourist arrivals due to security concerns, and lower remittances as workers return from Thailand. While fiscal stability offers some buffer and remains less concerning than among peers, limited government revenue and high external debt could constrain policy support.

Lao PDR is expected to grow at a moderate pace, supported by improved macroeconomic stability from easing inflation and reduced kip volatility. The impact of U.S. tariffs remains limited given minimal exposure to the U.S. market. However, risks persist, particularly from high state-owned enterprises (SOEs)-related debt and constrained capacity to absorb further external shocks.

Myanmar is likely to experience a modest recovery as economic activity gradually rebounds from the 2025 earthquake. However, the recovery will remain fragile, constrained by persistent internal conflicts, weak private consumption amid high inflation and poverty, and challenging business conditions. Macroeconomic policy support remains limited, as elevated inflation, a weak currency, and rising fiscal and debt pressures restrict both fiscal and monetary policy space. Additionally, the upcoming election is unlikely to deliver meaningful policy or economic changes and may add to downside risks.


Moderating trade and investment flows between Thailand and CLMV in 2026

Trade between Thailand and CLMV began to slow in Q3/2025, with Cambodia contributing the largest drag. This trend is expected to persist into 2026 as economic growth moderates in both Thailand and CLMV amid weak external demand and heightened global uncertainty, constraining trade and investment momentum. Structural vulnerabilities—including political uncertainty, high external debt, and financial stability risks—continue to weigh on investment inflows across the region.

Despite these headwinds, CLMV economies are projected to maintain positive growth in 2026, albeit at at a slower pace. Selective investment opportunities remain in sectors leveraging natural resources, geographic advantages, and cost competitiveness, offering potential for business seeking long-term strategic positioning.

• Growth deceleration expected: SCB EIC projects a slowdown in CLMV economies to 5.1% in 2025, down from 6.3% in 2024, mirroring the broader global economic and global trade deceleration. 
  
  
• Same region, diverging challenges: Elevated tariffs under Trump 2.0 are a significant concern, directly impacting export-driven CLMV economies. Vietnam and Cambodia are particularly exposed to these tariff risks. While CLMV economies face global trade uncertainty and cheap Chinese imports, country-specific challenges intensify individual pressures.
  
  
• Persistent downside risks remain: ranging from political instability and the aftermath of an earthquake in Myanmar, border tensions in Cambodia, to Lao PDR’s debt vulnerabilities—continue to weigh on consumption and dampen investor confidence.
  
  
• Vietnam growth relatively strong among CLMV bloc: Vietnam benefits from production shifts to ASEAN, strong supply chains, and reform-driven policies.
  
  
• Thailand’s regional trade and investment softens: Trade and investment flows between Thailand and CLMV are expected to moderate due to weaker regional demand, heightened global trade uncertainty, and cross-border political risks

Slower growth trajectory under synchronized risks and domestic pressures

SCB EIC anticipates CLMV economies to slow to 5.1% in 2025, down from 6.3% in 2024 as elevated U.S. tariffs under potential Trump 2.0 policies threaten export-driven growth models, particularly Vietnam and Cambodia, which are more reliance on external trade. The influx of cheap Chinese goods further undermines local production and competitiveness. Beyond trade, a global economic slowdown will indirectly impact CLMV growth prospects.

In 2025, SCB EIC projects slower growth across CLMV economies. Cambodia is expected to grow by 3.9% (down from 6.0% in 2024), Lao PDR by 3.6% (from 4.3%), and Vietnam by 6.3% (from 7.1%). In contrast, Myanmar’s economy is forecast to contract by -0.5% (from 2.3%).

The CLMV countries face external risks depending on their reliance on exports to the U.S. market, as well as country-specific challenges. For example, Vietnam and Cambodia are vulnerable to global trade risks due to their high dependence on exports to the U.S. Meanwhile, Myanmar, Cambodia, and Laos face domestic risks such as political instability and earthquakes in Myanmar, border tensions between Thailand and Cambodia, and fragile external stability in Laos, all of which add pressure to the region’s economic outlook. Additionally, some countries face macroeconomic and financial vulnerabilities—such as partial use of the U.S. dollar in their economies—which may expose them to the impacts of changes in U.S. interest rates.

Despite these risks, some supportive factors in the first half of the year may help partially cushion the economy—particularly front-loaded exports, a recovering tourism sector, and an improving labor market. In addition, the broader ASEAN economy is expected to provide some support for tourism and foreign investment inflows into the CLMV countries.

Country-specific factors

Vietnam is projected to be the standout performer. The country’s appeal as a manufacturing hub, driving by the ongoing relocation of production bases to ASEAN, more robust domestic supply chains—especially in electronics—, relatively lower U.S. tariff rates compared to CLM peers, and stronger investment incentives such as FTAs and proactive reform agenda.

Cambodia’s growth is expected to moderate due to high U.S. tariffs and reliance on the U.S. market, with added pressure from Chinese import influx. Border tensions with Thailand may further hurt business confidence, cause goods shortages and raise inflation. However, strong early-2025 exports and tourism offer some cushion. Fiscal stability remains sound, allowing room for further stimulus if needed.

Lao PDR remains vulnerable despite limited direct tariff exposures. The economy is constrained by persistent external debt and vulnerable financial sector burdened by non-performing loans , Additionally, even though inflation and the weakening kip have slightly improved, and external buffers have strengthened, structural vulnerabilities remain key issues continue to weigh on country’s outlook.

Myanmar’s economy is expected to contract as domestic political instability, ongoing conflict, and the recent earthquake continue to disrupt business activity and dampen consumption and investment.With constrained monetary policy, limited fiscal space, and elevated NPLs, the scope for recovery remain narrow.

Softening trade and investment flows between Thailand and CLMV

Trade between Thailand and CLMV is expected to slow, weighed down by weaker regional demand and global trade uncertainty. Border tensions, particularly between Cambodia and Thailand, add further downside risks. Thailand’s outward direct investment to CLMV has surpassed pre-COVID levels and continues to diversify across sectors such as finance, insurance, and manufacturing. However, rising political uncertainty and cautious investor sentiment may moderate future investment flows.

The Thailand–Cambodia conflict poses risks through multiple channels. Despite a ceasefire, prolonged border closures could pressure on bilateral trade. Moreover, investment and tourism sentiment could weaken amid heightened regional instability. Nonetheless, if more Cambodian labor gradually return to Cambodia, the impact on the Thai labor market is likely to be limited, as workers from other nations can still be sourced as substitutes.

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.

CLMV economic growth to accelerate in 2024.

SCB EIC expects CLMV economic growth to accelerate in 2024, backed by a recovery in exports and tourism, which will bolster domestic demand through labor market recovery. Looking ahead, CLMV economies are poised to benefit from the “China +1” strategy, with multinational enterprises seeking to diversify their manufacturing bases to mitigate rising geopolitical risks. This relocation trend will help buttress foreign direct investment (FDI) in CLMV countries in the medium term. In 2024, SCB EIC anticipates GDP growth of 6.0% in Cambodia (up from 5.6% in 2023), 4.7% in Lao PDR (from 4.5%), 3.0% in Myanmar (from 2.5%), and 6.3% in Vietnam (from 5.1%).


The growth rate of each CLMV economy still lagged behind the pre-COVID-19 average. Slower growth is primarily attributed to pressures from China’s economic deceleration, given CLMV’s heavy reliance on China—especially in trade, investment, tourism, and the real estate sector. Meanwhile, Cambodia and Vietnam witnessed an uptick in non-performing loan ratios following the withdrawal of COVID-19 relief measures. Furthermore, tighter domestic financial conditions may hinder credit from financial institutions and access to liquidity for businesses. Geopolitical conflicts also pose significant risks that warrant monitoring. In the short term, disruptions in the Red Sea and a drought in the Panama Canal could hamper global trade and heighten costs in export logistics for CLMV countries. In the long term, the CLMV region must prepare for the rising tides of protectionism worldwide, notably trade barriers and tariffs.

Economic recovery has varied across countries.

Economic recovery has varied across countries, depending on country-specific factors. Notably, Lao PDR faces risks from high public debt, which is mostly denominated in foreign currencies, and depleting foreign reserve buffers. Amidst a tightening of global financial conditions, this exacerbated the weakening Lao kip, increasing the burden of foreign debt and leading to a sticky inflation surge. These are factors pressuring Lao PDR's medium-term economic growth potential. To address this, the Lao PDR’s government has undertaken
a substantial fiscal consolidation along with debt restructuring negotiations while seeking new sources of funding to strengthen fiscal stability. Meanwhile, Myanmar still grapples with structural challenges stemming from political unrest that has been ongoing since 2021 and intensified in late 2023. Political turmoils have dampened domestic demand and economic activities, while Western sanctions have contributed to a weakening external demand. Other risks to Myanmar come from the US dollar shortage, resulting in weakening Myanmar kyat and swelling inflation, alongside disruptions in transportation and electricity supply. These challenges require a stable political environment to resolve, making short-term solutions rather elusive.

CLMV local currencies

CLMV local currencies may face softer downward pressures in 2024, as central banks in major economies are likely to lower their policy rates from mid-2024 onwards. These anticipated rate cuts will help attract capital inflows into emerging markets—including CLMV economies—and bolster FDI through lower funding costs. Nonetheless, country-specific challenges remain pivotal in local currency dynamics. We thus anticipate further depreciation in some CLMV currencies this year.

CLMV-Thailand trade and investment

In 2024, CLMV-Thailand trade and investment are poised to recover from a subdued state in 2023. A rebound is propelled by improving global trade, particularly in the manufacturing sector, and ongoing regional economic recovery. Besides, we expect global and Thailand's financial conditions to ease gradually this year, which would help facilitate Thaland’s outward direct investments in the CLMV region. Nonetheless, the investment rebound should be moderate, given the unfavorable investment climate due to economic instability in some CLMV nations. SCB EIC maintains a positive outlook for CLMV economies in the long term. CLMV will remain one of the high-growth regions which attracts both Thai and foreign investors with a large pool of young workforce, expansive free trade agreements, and a strategic location connecting to major markets like China and India.

CLMV economies will continue to grow in 2023

with anticipated GDP growth of 5.9% in Cambodia, 4.0% in Laos, 3.0% in Myanmar, and 5.0% in Vietnam. The growth outlook is attributed to buoyant tourism after China’s reopening—which bolstered the number of tourist arrivals and inbound tourist spending per capita—and domestic consumption which improved alongside the labor market and subsiding inflationary pressures. Still, CLMV economic growth will remain modest and below the pre-pandemic average expansion. Tourist arrivals gradually regained traction yet are still behind the pre-COVID-19 figures. Meanwhile, the export and foreign direct investment (FDI) outlook remained downbeat, given the global economic slowdown and country-specific challenges.

Different challenges facing each country are the reasons behind uneven rebounds.

With a high reliance on foreign tourism, Cambodia tends to witness a robust recovery in 2023 as impetus from the tourism sector will cushion the impacts of the global economic slowdown on Cambodia's exports. Meanwhile, Laos benefits from mega logistics projects—including China-Laos high-speed railway and freight transit yard at Thanaleng dry port. Improving logistics would provide thrust to Laos' economy through tourism and regional transport, yet there remain headwinds from high inflation. In contrast, Vietnam will likely see a sharp slowdown this year due to a high reliance on exports and FDI. In particular, Vietnam’s electronics industry should remain subdued throughout 2023. A tightening financial condition is another key risk to Vietnam. Some sectors, especially the real estate businesses, may struggle to raise funding, and this obstacle could deter business sentiment and private investment going forward.

Due to fragile economic fundamentals, economic growth in some CLMV countries will likely fall behind the pre-pandemic performance. 

In the medium term, Cambodia and Vietnam will gradually resume the previous growth momentum as economic headwinds should be temporary or eventually resolved. Nonetheless, Laos and Myanmar would continue to expand below the past average due to fragile economic fundamentals. Laos is confronted with external and fiscal vulnerabilities, given low foreign reserve buffer to cushion a sharp currency depreciation as well as high public debt. Thus, the Lao authorities resorted to tight monetary and fiscal policies to maintain economic and monetary stability. Apart from that, the Lao government may consider negotiations over public debt restructuring. These fiscal tightening may hold up the government spending on mega infrastructure projects. Meanwhile in Myanmar, ongoing political unrest remains a major pressure on the economy as well as investor confidence and consumer sentiment. On the external front, western nations have expanded economic sanctions against more military-affiliated persons and entities—thus further worsening the business environment. Therefore, we anticipate Myanmar’s sluggish growth over the medium term.

Despite subsiding inflation, CLMV monetary policy direction will primarily depend on economic conditions in each country. 

Inflation gradually cooled down across CLMV economies alongside falling global commodity prices. Still, the CLMV central banks opted for different monetary policy directions, depending on economic and financial backdrops. The State Bank of Vietnam (SBV) recently cut its policy rate to spur the economy and improve financial market liquidity, so as to alleviate impacts of a tightening credit condition on businesses. SCB EIC thus expects Vietnam’s monetary policy to remain accommodative throughout 2023 to bolster a flagging economy, including a weak real estate market that would take time to regain ground. Meanwhile, the Bank of the Lao PDR (BOL) will likely stay the course on tight monetary policy against persistent inflation—which somewhat cooled down but still hovered high. Given a weakening Lao kip that has kept import prices high, BOL policy will prioritize maintaining price stability throughout 2023.

The outlook on trade and FDI between Thailand and CLMV will likely stay somber in 2023

dragged by a regional trade slowdown and lower demand for industrial products. Nonetheless, we expect Thai exports to CLMV to gather momentum in the latter half of this year, owing to a steady rebound among CLMV economies and low-base effects—considering lower exports in H2/22 compared to H1/22. Meanwhile, Thailand’s direct investment (TDI) in CLMV should remain gloomy due to some hindrances in CLMV countries. These include higher borrowing costs, an economic rebound that has yet to regain a firm footing, and the unfavorable climate on business investment or business expansion in some countries. Despite all the setbacks, SCB EIC still maintains our positive outlook on CLMV economies. The CLMV region will remain an appealing market and investment destination for Thai investors, thanks to competitive edges in a large pool of workforce, low labor costs, growing domestic market, extensive free trade agreements, and its strategic location connecting Thailand to major regional markets.

CLMV countries will gain a stronger growth momentum in 2023, but remain below its growth potential prior to the COVID-19 outbreaks. The rebound would be uneven across countries, depending on economic fundamentals and country-specific risks. SCB EIC expects that Cambodia economy will grow 5.5% this year, 3.0% in Laos and Myanmar, and 6.2% in Vietnam.

Domestic demand and tourism will be key drivers for CLMV economic recovery in 2023. Domestic demand will gain support from improvements in the labor market, as seen in Vietnam’s Q4/22 employment soaring to its highest level since the COVID-19 outbreaks. Meanwhile, the service sector will benefit from rising tourist arrivals this year—particularly Chinese visitors, who made up about 30-35% of total foreign tourists in 2019. China has authorized outbound group tours traveling to Cambodia and Laos starting from February 6, 2023, and is expected to add more destinations to the list soon. In particular, Cambodia and Vietnam are poised to benefit the most from tourism rebound, considering the high contribution of tourism (both domestic and foreign) to GDP at 18.2% and 9.8%, respectively.

In contrast, external demand will decline alongside a subdued global economy. Such gloomy backdrop could affect CLMV exports and foreign direct investment (FDI). Among CLMV countries, Vietnam would take the hardest hit due to its extensive ties to the global supply chain. SCB EIC thus expects only Vietnam to witness a gradual slowdown this year, after a profound growth of 8% in 2022. China’s reopening might somewhat cushion adverse impacts on exports and FDI. Still, there remain risks that weak external demand could depress CLMV domestic demand, manufacturing production, and employment. 

CLMV central banks will likely implement a tighter monetary policy in 2023, but policy normalization will be gradual after inflation tends to cool down. Based on our assessment, CLMV inflation will start to wind down in line with falling global commodity prices in 2023, albeit slowly, as prices should remain elevated. Weak currencies—such as the Lao kip (LAK) and the Myanmar kyat (MMK)—will also keep import prices persistently high. Against this backdrop, CLMV central banks will raise the policy rate slightly to curb inflation and stabilize national currencies. SCB EIC anticipates a slower rate hike in H2/23 because 1) The US Federal Reserve has signaled a slower rate increase, which would alleviate downward pressure on CLMV currencies, 2) Overall economic recovery remained fragile, and 3) In some countries—such as Vietnam, local firms began to face hardship in refinancing debt and thus falling into a liquidity crunch. This could fuel economic risks if the tight financial condition continues.

The economic recovery in Laos and Myanmar are expected to be slower than other countries due to country specific risks. Laos’ economic stability is fragile from price stability, to fiscal and external balances—which would keep future growth below its potential. Laos also faces high inflation, partly from rapid LAK depreciation and deteriorating fiscal positions, which depressed domestic economic activities Laos’ external public debt burden is expected to average USD 1.2-1.5 billion annually in the next four years, while the foreign reserve buffer remained low at around USD 1.1 billion as of September 2022. Meanwhile in Myanmar, ongoing political uncertainty would weigh down economic growth in the medium term. Investors will continue to have lower sentiment, and domestic economic activities in Myanmar should remain subdued. Despite the incoming general election in 2023, SCB EIC views that it will not significantly ease political uncertainties. Hence, these drawbacks will likely keep Myanmar’s growth below its potential for the time being.

Thailand’s direct investment to CLMV is expected to grow this year, albeit slowly, from a subdued reading in 2022. Negative factors in recent years include a fragile and teetering economic rebound, soaring inflation that heightened business costs, and country-specific risks such as Myanmar's political unrest that hampered investor sentiment. Furthermore, as foreign investment usually takes time for preparation, the COVID-19 outbreaks thus aggravated many FDI project postponement. These setbacks would still exist in 2023, yet improving conditions—from more upbeat economic momentum, cooling inflation, and the easing of regional travel restrictions—should help ignite a gradual rebound in FDI to CLMV countries. In the medium term, SCB EIC views that the CLMV region would remain an appealing investment destination for Thai and foreign investors, thanks to low wages, a growing domestic market, and free-trade agreements (bilateral and multilateral FTAs) with major trade partners. Given those strategic advantages, CLMV countries could become an attractive manufacturing base for exports to large markets such as China and India.

Lastly, ongoing geopolitical tensions are risks that could lead to both advantages and disadvantages for the CLMV region. The top issue that warrants monitoring is the China-US-Taiwan dispute. The friction might expand into the South China Sea—a major regional trade route—and thus trigger a supply chain disruption in the manufacturing sector. Meanwhile, leading economies tend to impose higher trade barriers to safeguard local industries, implying higher business costs and poses risks to CLMV exporters. On the other hand, geopolitical tensions could also benefit CLMV through a potential manufacturing relocation from China to the region. In such case, CLMV countries would enjoy an upper hand from geographical advantage with close proximity to China, low wages, and broad FTA networks. Besides, as major powers step up efforts to gain regional influence, CLMV could benefit from economic partnerships—such as China’s Belt and Road Initiative or the US’ Indo-Pacific Economic Framework—to uplift their economic potential.

Laos is facing a rapid depreciation of the kip in tandem with inflation surges.

As of August 8th, 2022, the Lao kip already tumbled to 15,000 LAK/USD—seeing a 57% drop against the greenback and 44% against the Thai baht since September 2021, marking the largest depreciation among regional peers. Driving forces behind the kip crumble were tightening global financial condition, inflationary pressures from the ongoing Russia-Ukraine war which sent commodity and oil prices soaring, and the global supply chain bottleneck—all of which threatened Laos’ economy that highly relies on imports. Against this backdrop, Laos’ inflation has been on the rise, resulting in US dollar inadequacy and goods shortages nationwide, particularly fuel oil.

 

The crisis primarily stemmed from a fragile economic structure.

Recent developments in the global economy—notably monetary policy tightening among major central banks—took a heavy toll on the Lao economy, which already grappled with long-running fiscal deficits and public debt overload from large infrastructure investments to buttress growth. Aside from that, Laos’ financing options became limited given rising costs of funds after its sovereign credit rating was slashed to a speculative grade. Foreign reserves buffers also remained low, owing to persistent current account deficits. These were downward pressures on the kip and looming risks to external debt service and imports of staple goods.

 

In our view, the situation in Laos is unlikely to follow a crisis-ridden Sri Lanka since Laos still secures financing options and leeway for debt renegotiation.

Despite a spiraling public debt stock, the debt figure in Laos remained lower while international reserves in terms of imports and short-term external debt were higher than those of Sri Lanka. Besides, Laos still secure some funding channels from (1) Issuing bond in foreign financial markets such as Thailand—Laos recently issued government bonds worth THB 5 billion in March 2022; (2) Loans from international organizations; and (3) Economic restructuring through the privatization of under-performing state-owned enterprises while encouraging investment and private sector engagement in order to attract foreign investment and bolster exports. Until now, Laos’ fiscal and monetary policies were primarily focused on supporting the economy. Yet these measures do not address the root causes of problems, and could worsen an already-fragile economic stability. Looking ahead, debt renegotiation, especially with China, should be a priority for the Lao government to stave off a debt default. As a dominant creditor, China will likely take the offer considering Laos’ strategic position in its ambitious Belt and Road Initiative to gain influence over the ASEAN region.

 

Adverse impacts on Thailand should be limited, albeit remains risks that warrant monitoring.

EIC assesses that the crisis will affect Thailand’s economy through four channels: exports, tourism, Thailand’s direct investment (TDI), and the financial sector. First, Thai exports might suffer from an economic slowdown in Laos followed by shrinking demand. But overall exports still see a rosy outlook buoyed by rising prices of refined oil—a major export product to Laos. Secondly, incoming tourists from Laos are confronted with risks from eroding purchasing power on the back of the weakening kip. Yet, the number of Lao visitors should pick up after Thailand's full reopening. Thirdly, TDI inflows to hydropower projects in Laos should be heedful of a possible delay of electricity payment from Laos, which could affect future sentiment. Although Laos’ financial stability is relatively strong, it could become more vulnerable going forward. Still, we expect that overall impacts on Thailand should be limited since the major buyers of Laos’ power are also Thai enterprises, and there are signed PPAs in place.

After a sluggish recovery in 2021 pressured by the outbreak of the Delta variant, CLMV economies are expected to see a stronger recovery in 2022 supported by higher vaccination rates, resilient exports, and a gradual return of international tourists.

• On the domestic front, higher vaccination rates have allowed authorities to relax lockdown measures, supporting a gradual domestic demand recovery. Officially confirmed COVID-19 cases have plummeted in Cambodia and Myanmar, while Laos and Vietnam have seen steady declines. Recent COVID-19 restrictions have been less stringent than in the past as CLMV economies adapt to living with COVID-19 and resort to partial lockdowns instead of nationwide lockdowns. Additional fiscal stimulus is expected to shore up domestic demand in Cambodia and Vietnam due to their adequate fiscal space, whereas Laos and Myanmar’s space for fiscal stimulus are more limited. Nonetheless, scarring effects from the pandemic would remain a drag on economic activity particularly through elevated unemployment rates and weakening household incomes.
  
  
• On the external front, continued global economic growth and border reopening should underpin external demand recovery, supporting exports and foreign investment. CLMV exports are expected to see continued growth in 2022, albeit at a slower pace than 2021, as global demand for goods remains resilient especially for electronics and work-from-home products related to new lifestyles. With a lower economic uncertainty, FDI inflows should gradually return to the region aided by easing border restrictions and shortened quarantine requirements. Foreign trade and investment into the region would also benefit from RCEP which became effective in January. Despite that, the Omicron outbreak remains uncertain, and a prolonged spread would pose downside risks for external demand through possible supply chain disruptions.
  
  
• Border reopening would also allow tourists to return gradually, with stronger growth expected in the second half of 2022 as Omicron concerns abate. However, Chinese tourists, which constitute a dominant share of international tourism in the region, are still barred by tight border restrictions. With China’s Zero-Covid policy and high transmissibility of the Omicron variant, EIC believes China’s border reopening for international tourism will be delayed to late-2022 or may be put off until 2023.
  
  
• Factors to watch for CLMV economies in 2022 include 1) the Omicron variant or other emerging variants and risks of additional outbreaks, 2) vaccination progress and plans to ease border and mobility restrictions, and 3) fiscal and financial stability, particularly in Laos and Myanmar, amid higher public debt burden and monetary tightening in developed economies. Country-specific factors are also important to monitor, including the political situation in Myanmar and the recent opening of the Boten-Vientiane railway in Laos.

• On the domestic front, widespread outbreaks across all CLMV countries since April 2021 have caused CLMV governments to further tighten contain measures. As a result, economic activities were hampered, and already-fragile domestic demands were suppressed. Containing the most recent COVID-19 waves have been proven the be the toughest challenges for the region so far, even for Vietnam who successfully re-contained multiple outbreaks earlier. This time, however, Vietnam continues to face severe infection rates and has been imposing strictest lockdown measures. At the same time, Myanmar is also facing high number of cases amid medical personnel shortages due to political turmoil. Numbers of COVID-19 cases in Cambodia and Laos are also higher than previous outbreaks, but lower than the other two countries.
  
  
• On the external front, however, CLMV exports remained resilience amid the pandemic, owing to further recovery in demand among developed economies and provided supports for the region’s growth prospects. Vietnam’s electronics exports sector continued to display robust performance and be the region’s key driver. Nonetheless, the risk to regional supply chain disruption warrants monitoring, with widespread pandemic posing threats of further factory closures, and could be a significant headwind to the exports sector from 3Q21 onward.
  
  
• Going forward, CLMV economic recovery in 2021F will continue to hinge on: 1) The effectiveness and timeliness of COVID-19 containment measures as well as vaccination progress to allow resumption of economic activities, 2) The size and effectiveness of fiscal and monetary stimulus measures to mitigate impacts on households and businesses and 3) Country-specific factors including ongoing political uncertainty in Myanmar and debt-servicing ability in Laos.

The CLMV economies showed signs of rebounding from their trough in 2Q20 due to the easing of lockdown measures during May-June 2020. In the second half of 2020, the COVID-19 outbreak was contained in Cambodia and Laos, but Vietnam and Myanmar have been hit by a resurgence of the virus. Using regional lockdowns, Vietnam successfully re-contained the pandemic in August. On the other hand, Myanmar has been impacted by a soaring number of cases since September. In addition to ongoing impacts from rising unemployment and slow global demand, different degrees of COVID-19 resurgence, the effectiveness of containment measures, and country-specific factors will likely cause an already slow and uneven CLMV economic recovery to diverge even more. Vietnam’s recovery is on track with strong exports. In addition to COVID-19, the partial withdrawal of EBA privileges should exacerbate Cambodia’s external demand issues. Laos’ limited fiscal space and increased risks of debt distress will likely continue to slow down its economy. Lastly, Myanmar’s recent COVID-19 resurgence and lockdown re-tightening will likely result in a slower-than-expected recovery for FY2020/21.

With stringent lockdown measures, CLMV countries in 1H20 were able to contain the COVID-19 outbreak and ease their lockdown measures relatively faster than other regions. Nevertheless, both domestic and external demand are likely to remain depressed going forward as a result of higher unemployment, rising cases abroad, and extended border closures. EIC has therefore revised 2020 GDP growth forecasts downward for all four countries. The economic slowdown could also expose CLMV economies to longer-term issues and structural vulnerabilities, including deteriorating fiscal and external positions as well as financial institutions’ asset quality, posing downside risks on sovereign credit ratings and outlooks. Country-specific risks remain issues to monitor, including the effects of partial EBA withdrawal for Cambodia, effective in August 2020, risks on credit rating downgrade and ability to service debt for Laos, the general election scheduled for November for Myanmar, and the resurgence of COVID-19 cases for Vietnam. Combined with prolonged impacts and high uncertainty from COVID-19, CLMV economic recovery is likely to be gradual and uneven across countries and sectors looking forward.

CLMV economies proved their resiliency during the global trade tension period in 2018-19, supported by strong domestic demand. However, EIC believes the   COVID-19 outbreak has changed the CLMV economic outlook materially in 2020F, given falling external demand from a deep global recession and weakening domestic demand from lockdown measures and employment slowdown. The slowdown is expected to be broad-based, affecting CLMV economies through five key economic channels, including 1) exports, 2) supply chain disruption, 3) tourist arrivals, 4) foreign direct investment (FDI), and 5) private consumption. In addition, each country faces their own country-specific risks. As a result, EIC has substantially revised down 2020 GDP forecasts for all four countries. To shore up growth, accommodative fiscal and monetary policy responses have been introduced and are likely to continue. On the recovery path, given country-specific challenges and an expected U-shaped recovery in global growth, EIC believes CLMV economic recovery in 2H20 is likely to be gradual. With uncertainty regarding the containment of COVID-19, our forecasts are subject to further downside risks.

Headwinds from prolonged trade uncertainty and growth deceleration in major economies are affecting economic prospects in CLMV through slowing exports and tourist arrivals. Yet, adaptive regional production partially benefits CLMV, especially Vietnam at least in the short run, as Chinese manufacturers and some MNCs shift their production to CLMV countries to evade US tariffs. As a result, FDI interest in the CLMV economies in the coming years should continue. Moreover, CLMV’s large and still-growing consumer markets are expected to cushion negative effects from the external slowdown. Nevertheless, pockets of risks are mounting as each country currently faces individual risks stemming from both domestic and external sources. Cambodia and Myanmar are at risk of EBA withdrawal and might lose export competitiveness in the medium term. Laos is still at risk of sovereign debt stress while Vietnam may face additional US protectionist policy if labeled as a currency manipulator by the US Treasury.
 

CLMV economic growth will likely moderate to 6-7% in 2019 and 2020 as external risks have become more pronounced. The global economic slowdown caused by trade conflicts has had spillover effects on CLMV economies. CLMV exports in the first five months of 2019 contracted by 8%YOY, dragged down by falling shipments to major Asian trade partners. However, CLMV countries continue to attract large FDI inflows. The current trade war is likely to accelerate production relocation trends to the CLMV in the coming years, mainly to Vietnam. In addition, the tourism and service sectors are expected to play an increasing role in contributing to economic growth ahead as a buffer from weak exports. For domestic markets, urbanization and a growing middle-income class have increased people’s purchasing power and demand for more varied goods and services. Nonetheless, the key risks to CLMV economies are a sharper-than-expected global economic slowdown, especially in China, and country-specific challenges.

 

CLMV economy will maintain its high growth around 6-7% in 2019. Amid rising global uncertainties, especially trade war, international demand to CLMV still supports growth in exports, FDI, and tourism. CLMV exports recorded a 5%YOY growth in the first two months of 2019, particularly to the countries with trade privileges and bilateral deals. Meanwhile, CLMV governments have prioritized their spending to improve business environment via infrastructure investment and new industry development. Rapid economic growth during the past years also leads to an expanding middle class which helps support domestic consumption going forward. Nonetheless, key risks ahead to CLMV economy are China’s economic slowdown, prolonged current account deficits, and country-specific uncertainties, notably a loss of EU’s trade privileges (EBA) in Cambodia and Myanmar, high external vulnerabilities in Laos and Myanmar, and a high credit growth which may lead to new bad loans piling up in Vietnam.

 

The CLMV economy is likely to continue its brisk growth of around 6-7% in 2019. Effects from the global economic slowdown are expected to be limited, thanks to continued inflows of foreign investment in infrastructure construction and factory expansion. Amid rising tension from the US-China trade war, Vietnam is emerging as an FDI safe haven. Many China-based manufacturers have decided on investment relocation to Vietnam to avoid import tariffs from the US and utilize the country’s advantages. Seeing brighter prospects going forward, tourism would be another spearhead industry supported by the CLMV governments. China and other Asian countries have been the largest sources of foreign tourists and the number continues to rise. Exports are expected to maintain growth momentum, with strong international demand for CLMV-made products. Nonetheless, near-term risks come from both external uncertainty and country-specific challenges. These include fluctuations in local currencies, a potential loss of EU preferential trade treatment in response to human rights abuse in Cambodia and Myanmar’s Rakhine State, and Vietnam’s growth concentration in foreign-invested sectors.

CLMV economic growth remains favorable around 6.5-7% in 2019, notably supported by external factors. CLMV economies would rather benefit from escalating US-China trade war as more foreign direct investments are expected to relocate to the region, especially Cambodia and Vietnam, to avoid the US’s tariffs. Exports will accelerate following growing international demand for CLMV’s labor-intensive products under preferential trade privileges.Tourism activities will continue to improve, thanks to ASEAN tourists. Meanwhile, Domestic demand will expand, following a rapid economic growth. However, risks to CLMV economic growth in 2019 have stemmed from country-specific issues and arise from tightening global financial conditions and China economic slowdown.

Download CLMV Monitor Q4/2018

CLMV economic growth remains robust on the back of rising exports and continued infrastructure development. China’s influence over the region has been expanding – led by BRI-related investment, export demand and tourism. Meanwhile, tightening global monetary policy has intensified external vulnerability to some CLMV countries, pressuring on local currency depreciation and elevating debt repayment.

Download CLMV Monitor Q3/2018

 CLMV economy will continue its high growth at 6-7% in 2018 and maintain such a bright prospect in the coming years, supported by exports, foreign direct investment, and tourism. In addition, rising income and rapid expansion of internet access is paving ways for a new business channel, e-Commerce. Despite its small size, e-Commerce market in CLMV shows a promising growth prospect and hence offers an attractive business opportunity. However, continued trade deficits, high external debt and political issues remain major risks to economic growth.

Download CLMV Monitor H1/2018