Myanmar’s GDP to grow by 6.4% in 2018-19 - ICAEW

25 September 2019
Myanmar’s GDP to grow by 6.4% in 2018-19 - ICAEW
Residential and commercial buildings by the river banks as boats sail across the Yangon River. Photo: Sai Aung Main/AFP

Myanmar's economy is forecast to expand to 6.4% in 2018-19, before picking up to 6.8% in 2019-20, as the market opens up to foreign investment, according to the Institute of Chartered Accountants in England and Wales’s (ICAEW) latest Economic Update: South-East Asia report. However, the ongoing Rakhine crisis is a key risk to the economy, with tourism and trade with the European Union (EU) potentially experiencing slowdowns.

Overall economic growth across the region in H1 2019 slowed to 4% on the year compared to 4.5% in H2 2018. This is the result of spillovers from the US-China trade war, slower Chinese domestic demand and a downturn in the global electronics cycle.

Slower export momentum weighed heavily on the growth of trade dependent economies such as Singapore, Thailand and the Philippines. Meanwhile, Malaysia and Vietnam have outperformed the region, reflecting a more modest deceleration in export growth and resilient domestic demand.

Sian Fenner, ICAEW Economic Advisor and Oxford Economics Lead Asia Economist said, "Amid ongoing global headwinds and uncertainty around the outcome of US-China trade talks, we expect to see a further deterioration in economic prospects across the region, particularly amongst more trade dependent economies. Overall, regional South-East Asia GDP growth is expected to moderate to 4.5% this year, and stabilise at the same rate in 2020. "

Myanmar's economy is forecast to expand to 6.4% in 2018-19, before picking up to 6.8% in 2019-20, as the market opens up to foreign investment, with the infrastructure, manufacturing and wholesale & retail services sectors expected to be the greatest beneficiaries. Indeed, after a 14% drop in foreign direct investment (FDI) to US $ 5.7bn in 2017-18, FDI inflows are improving.

According to the Myanmar Investment Commission, FDI inflows rose to over US $ 3.5bn over the 10 months to August 2019, with a sharp rise in investment channelled into the transportation & communication sector and the manufacturing sector.

Domestically, infrastructure investment is expected to increase over the next 18 months as a result of big infrastructure projects including those under the China-Myanmar Economic Corridor (CMEC) such as New Yangon City, Kyaukphyu Deep Sea Port and Kyaukphyu-Kunming Railway.

Escalating US-China trade tensions and the ongoing humanitarian crisis in the Rakhine state and slow progress in the repatriation of refugees will pose a key risk to Myanmar's economy. Some of the economic impacts of the conflict are already being felt in tourism, with the number of international visitors down some 25% from their 2015 peak. Further impacts could include the loss of some special trade preferences from the EU, which would greatly impact textile exports.

In addition, while Myanmar is set to benefit from strengthening FDI inflows, this will greatly depend upon the country's ability to improve its business environment and the complexity of its current tax system, enforcement of contracts and trading across borders. Looking further ahead, structural reforms are needed to aid firms' ability to do business in Myanmar.

"We expect the challenging external conditions to continue weighing heavily on overall growth across South-East Asia economies, as well as on regional trade flows. While higher infrastructure investment, and increased manufacturing and wholesale & retail services sectors are set to bring major benefits to the economy, we remain cautious of the infrastructure and regulatory drawbacks that will hinder Myanmar's ability to fully reap the benefits of its low-wage advantage, "said Mark Billington, ICAEW Regional Director , Greater China and South-East Asia.