Expansionary fiscal and monetary policies supported economic growth in 2013. They also put stability at risk as inflation accelerated, fiscal and external deficits widened, and international reserves shrank. The government responded by cancelling some fiscal expenditure, which will take a toll on gross domestic product (GDP) growth in 2014. The key to maintaining economic stability and robust economic growth is to restore a sustainable fiscal position.

Economic performance

GDP grew by 7.6% in 2013, slightly below the pace of the previous 2 years. Growth in services gathered momentum, but industry and agriculture slowed.

Services expanded by 9.0% last year. Robust consumer spending, backed by a very large rise in incomes for the civil service, drove increases in wholesale and retail trade, while strong growth in credit boosted financial services. A 12% increase in tourist arrivals to 3.7 million in 2013 benefited hotels, restaurants, and transportation. Double-digit growth in telecommunications stemmed from the extension of mobile phone and internet services.

Growth in industry as a whole slowed to 7.2% in 2013.

Agriculture was hit by floods in the third quarter, but production still grew by 2.7% for the year.

Selected Economic Indicators (%) - Lao People’s Democratic Republic 2014 2015
GDP Growth 7.3 7.5
Inflation  5.5 6.0
Current Account Balance (share of GDP) -27.4 -26.0

Source: ADB estimates.

Economic prospects

Domestic demand is expected to moderate in 2014, trimming GDP growth to 7.3%. Government investment will slow as it postpones 254 public projects and cuts off-budget spending. Reduced government investment and delayed government payments to suppliers and employees will hurt business activity and confidence. Slowdowns in large and influential neighbors, the People’s Republic of China and Thailand, also cloud the outlook, particularly for investment.

Next year, GDP growth is forecast to pick up to 7.5% as more export-oriented projects come into production, Thailand recovers, and exports gain momentum with the brightening global outlook.

Source: ADB. 2014. Asian Development Outlook 2014. Manila.