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Laos: World Bank Warns Possible Challenges to Macroeconomic Stability |
| Source: |
kplnet.net |
| Source Date: |
Tuesday, October 19, 2010 |
| Focus: |
ICT for MDGs
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| Country: |
Lao People's Democratic Republic |
| Created: |
Oct 25, 2010 |
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(KPL) The economic recovery in East Asia and the Pacific is robust, but attention must now turn to managing emerging risks which may pose challenges to macroeconomic stability, warns the World Bank.World Bank's latest East Asia and Pacific Economic Update Robust Recovery, Rising Risks"released on Tuesday, notes that the output has recovered to above pre-crisis levels throughout developing East Asia, and is expanding at near the pre-crisis rates in some countries.
Real GDP growth is likely to rise to 8.9 per cent in the region in 2010 (6.7 per cent excluding China), up from 7.3 per cent in 2009 and in line with the average growth rate during 2000-2008. The private sector investment is once again driving growth, confidence is on the rise, and trade flows have returned to pre-crisis levels.
Yet, greater confidence in the region’s growth prospects and concerns about tepid economic expansion in advanced economies are creating the need for policy makers to perform a delicate balancing act- in particular, around the return of large capital inflows and appreciating currencies.
Driven by abundant global liquidity in search of yield, combined with expectations of stronger growth in the region than abroad, capital inflows have risen sharply this year. Larger inflows have helped exchange rates appreciate substantially despite exchange market interventions by central banks. Inflows have also contributed to large increases in asset prices. Most monetary authorities have refrained from introducing capital controls so far.
"Should inflows remain strong, especially against a background of weak global growth, the authorities will be faced with the challenge of balancing the need for large capita inflows, especially foreign direct investment with ensuring competitiveness, financial sector stability, and low inflation," said World Bank Chief Economist for the East Asia and Pacific region, Mr. Vikram Nehru. With economic recovery on firmer footing, the authorities in most East Asian countries are cautiously unwinding their stimulus measures. Fiscal deficits will remain higher than before the crisis, at least for a while, as governments address infrastructure gaps and maintain social safety nets to protect the poor, providing an appropriate defence against subdued prospects for advanced economies.
Many countries in the region are also focusing on addressing medium-term growth challenges. Increasingly, the need for China to rebalance the economy by altering the pattern of growth and investment is becoming critical for sustainability. Commodity exporters such as Mongolia, Timor Leste, Papua New Guinea and the Lao PDR must ensure a transparent framework to use resource-related revenues for development. The middle-income countries of the region, excluding China, need to raise investment in physical and human capital and encourage innovation if they are to eventually attain high-income status.
Lao PDR’s economic performance is expected to be strong in 2010. Real GDP is projected to grow at about 8.5 per cent in 2010 up from 7.5 per cent in 2009.
This projection has been revised upward from the 7.8 per cent forecast in April 2010 because major sectors, such as natural resources especially with commercial operation of Nam Theun hydropower station (NT2), and a higher than anticipated mining extraction?, manufacturing (agro-processing, food and beverages, cement and metal) and construction have performed better than earlier anticipated this year while garments and tourism started to rebound. However, growth in agriculture (especially rice production) is expected to slow in 2010 due to early drought and recent flood in some provinces. The Lao headline inflation (year-on-year) has risen notably in past months and was at nearly 8 per cent in August 2010 due to the rapid increase in food prices. Food prices grow by 14 per cent year on year in August (or contributed about 7.5 percentage points to the total inflation) and core inflation (excluding food and energy) climbed slightly by 3.4 per cent (or contributed around 1.7 percentage points) caused by sustained demand for consumption goods while fuel prices increase has slowed to 6.8 per cent in August from 20.3 per cent in May (or contributed only 0.5 percentage points).
Among other key food items, rice price contributed 8.8 percentage points (or increased most by 49.2 per cent year on year), vegetables about 1.3 percentage points (up by 11 per cent year on year) and the rest about 3.9 percentage points to food prices in August.
Imported inflation, through the depreciation of the kip vis a vis the Thai baht of 4.6 per cent over the last 12 months and Thai inflation (3.3 per cent in August), also contributes to higher prices.
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Laos: World Bank Warns Possible Challenges to Macroeconomic Stability (KPL The economic recovery in East Asia and the Pacific is robust but attention must now turn to managing emerging risks which may pose challenges to macroeconomic stability warns the World Bank.World Bank's latest East Asia and Pacific Economic Update Robust Recovery Rising Risks"released on Tuesday notes that the output has recovered to above pre-crisis levels throughout developing East Asia and is expanding at near the pre-crisis rates in some countries
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