Once a 'growth star', Myanmar GDP could contract 13% due to political crisis: Oxford Economics

MYANMAR'S economy could contract by 13 per cent in the financial year ending in September due to the fallout from its ongoing political crisis, says a report from Oxford Economics.

"Our once-positive outlook for this year and the medium term has soured," said Oxford Economic's lead Asia economist Sian Fenner, who authored the report.

Myanmar's military coup has been "deadly in human terms and devastating economically", she added.

Prospects are also expected to remain glum, with the economic situation unlikely to improve anytime soon, she said, with the Tatmadaw (military) expected to remain in power even if elections are held within a year as promised and protests likely to continue.

"We also expect the effects of heightened political risk and business uncertainties on investment and FDI (foreign direct investment) to be large, with several projects being delayed or cancelled," said Ms Fenner.

Total investments could fall over 40 per cent this year, with several multinational companies already halting planned expansions, she added.

A NEWSLETTER FOR YOU

Friday, 8.30 am

Asean Business

Business insights centering on South-east Asia's fast-growing economies.

Sign Up

Moreover, FDI inflows could remain below pre-coup levels for some time as the political instability drags.

"While we expect growth to slowly resume after recording a 13 per cent drop in FY2020-2021, we estimate that GDP (gross domestic product) will still be around 18 per cent lower by 2025 than before the coup, and GDP per capita around US$1,000 lower," she said.

Before the Covid-19 pandemic, Myanmar was considered an "Asian growth star".

The country's GDP expanded an average 6.7 per cent per annum from 2011 to 2019, before the pandemic dealt a blow to tourist arrivals, supply chains and external demand, she said.

Still, she had estimated Myanmar's GDP to grow 2.9 per cent in FY 2019-20, which would be a "relatively mild slide" compared with the average 3.8 per cent drop among key Asean economies.

Ms Fenner noted that protests and restrictions on the Internet and banking sector have severely disrupted private and government activity and services. The number of newly registered businesses is down 87 below that of a year ago, while the purchasing managers' index was deep in contractionary territory in May, she said.

Export momentum appears to have stalled not only because of domestic disruptions but US sanctions on military-owned companies and cancelled orders by multinational clothing companies, she said, citing trade data.

Myanmar's military seized control on Feb 1 following a general election, detaining elected leader Aung San Suu Kyi and members of her National League for Democracy party after claiming widespread fraud.

The coup triggered a wave of civilian protests that led to a clampdown by the military, which often turned to violence to quell protestors.

Myanmar's woes are compounded by the Covid-19 pandemic, but its outlook is contingent on the gradual restoration of production, transportation and other key services including banking and the Internet, said Ms Fenner. As such, de-escalation between the military and protestors is critical for recovery.

At the same time, Myanmar is facing a potential banking crisis, with cash shortages leading to daily withdrawal limits, as well as a possible balance-of-payments crisis, she said, with the kyat falling 8 per cent against the US dollar since Feb 1 despite central bank intervention.

"We expect the currency to remain under considerable pressure given the prospect of falling export revenues and lower FDI inflows," she said.

"Any one of these scenarios would see GDP growth contract even further in the short term, with inflation possibly even returning to levels of the early 2000s. The permanent economic scarring would also be larger."