Oil prices pose inflation risk in Greater Mekong countries

May 19, 2021

SINGAPORE -- Rising global commodity prices and ongoing economic recovery have stoked inflation concerns. For Cambodia, Laos, Myanmar, and Vietnam, says ANZ Bank, higher oil prices pose a key upside inflation risk, unlike global food prices.

"The prospects for domestic demand recovery also look subdued amid a slow vaccination rollout, which means that the acceleration in core inflation will not be discomfortingly large," ANZ says in an economic  research report.

:However, a low base from last year will also play an important part, implying that central banks in the region will largely look past higher inflation prints to keep monetary policy settings accommodative through the year.

ANZ has downgraded its growth forecasts for Cambodia (3.8%), Laos (3.5%), and Vietnam (7.0%), keeping in view their resurgent virus situations and resulting activity restrictions.

"For Myanmar, we expect a significant GDP contraction in 2021 (-10.3%), given the ongoing political situation," the bank says.

"Inflation is expected to remain broadly contained in the region, except for Myanmar, where supply-side disruptions could see it rising materially.

"We forecast larger current account deficits for Cambodia, Laos, and Myanmar in 2021 compared with 2020. For Vietnam, a smaller surplus looks to be on the cards amid ongoing import recovery.

www.research@anz.com  (ATI).