The National League for Democracy continues to consolidate its position as Myanmar's new government, having installed leader Aung San Suu Kyi in the powerful new role of 'State Counsellor' in order to circumvent constitutional restrictions regarding the presidency. Nevertheless, the government faces an increasingly difficult uphill battle in accomplishing its wide-ranging goals around economic and political reforms in the country. Its first major test will be the upcoming 21 st Century Panglong Conference, targeted for July. The conference represents an attempt to move forward with the country's decades-long national reconciliation process, the heart of which is a national ceasefire agreement which has only been signed by 8 out of 15 major ethnic rebel groups. Should the government find a way to accomplish even a limited peace (its lack of control over the military, as well as myriad other complications makes a universal peace accord unlikely), it would free up highly taxed government resources for the task of addressing economic reforms. That said, foreign direct investment continues to pour into the country and should be bolstered by an increase in confidence following the positive election outcome, and we believe that even incremental moves in the right direction will keep the economy on track for strong growth over the coming years. We forecast real GDP growth of 8.0% in FY2016/17.
The Cambodian economy boasts strong growth potential due to its low-wage population, vibrant tourism industry, and geographic location at the heart of ASEAN, which should enable it to benefit from greater regional integration. As such, we forecast real GDP growth in excess of 6.0% over the coming years. That said, there are several potential pitfalls, not least the recent deterioration of the political environment, with strongman Prime Minister Hun Sen becoming increasingly intolerant of opposition dissent amid declining popular support. This threatens to trigger a resurgence of protests among opposition supporters, which include the crucial garment workers unions, and could deliver a blow to the business environment undermining the country's appeal in the highly competitive industry.
Despite near-term weakness, we maintain our bullish outlook on the long-term economic growth trajectory of Laos. Importantly, the 2016-2020 socio-economic development plan, which outlined plans to diversify the economy into manufacturing and focus on its competitive advantage, will be a positive for the economy. Accordingly, we have upgraded our long-term real GDP growth forecast for Laos, and now expect the country to achieve an average growth rate of 6.8% per annum over the coming decade, up from 6.5% previously.
Since the new generation of leaders in the Lao People's Revolution Party (LPRP) took over in April, there has been a series of high level bilateral exchanges between Laos and Vietnam, and we highlight that this is a sign that the new leadership is trying to adopt a more balanced foreign policy stance (as chair of ASEAN in 2016). However, we believe that Laos will remain neutral on regional issues so as not to strain ties with China, as the latter will continue to hold large economic sway over its smaller communist neighbour.
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