The Greater Mekong region will urbanise faster than UN's estimates: ANZ

With increasing clustering taking place around existing cities, the rate of urbanisation in the Greater Mekong region, which comprises Cambodia, Laos, Myanmar, Thailand, and Vietnam, is growing much faster than an annual rate of 2.3 per cent projected by the UN, according to ANZ.

ANZ expects that the recent intensification of manufacturing facilities relocating out of China, coupled with the associated reorganisation of regional supply chains, will catalyse industrialisation and thereby urbanisation processes in the region. This bodes well for the economic prospects for the regional countries and also provides governments with an active policy tool.

ANZ also contends that the UN estimates are conservative and vulnerable to inconsistencies around how cities are defined and whether people residing outside administrative boundaries of cities in dense peripheral agglomerations are counted or not.

For example, the Asian Development Bank (ADB) taps into night light time satellite imagery to delineate contours of urban agglomerations, which they call "natural cities" to differentiate from cities defined by administrative boundaries. The ADB finds that natural cities have expanded significantly both in terms of population and area - often spanning multiple adjoining administrative boundaries.

Hence, the Greater Mekong region could already be somewhat more urbanised than what official statistics suggest and the region will likely urbanise faster than what has been projected.

That being said, the future is not all rosy for the Greater Mekong economies. Notwithstanding the trend of increasing urbanisation, dangers still lurk in global uncertainties.

Despite a relatively steady GDP growth, a subdued inflation rate and an improved trade balance, Cambodia risks a temporary withdrawal of the European Union's (EU) Everything But Arms (EBA) tariff preferences that Cambodia currently enjoys, which contributes to a more negative economic outlook in 2020.

Laos' recovery from the 2018 flood is slower than expected, with a sluggish growth in industry and services, slower FDI inflows, and a sharply rising inflation rate due to rice shortages post-flood. ANZ warns of an escalating indebtedness of the country in 2020.

Myanmar has benefited from increasing tourist arrivals, accelerating economic reforms, and rising FDI inflows. Nevertheless, high inflation, slower economic growth of China, and a possible removal of preferential trade by the EU undermines its prospect of growth in 2020.

As for Thailand, ANZ expects a modest recovery in 2020. Even though weak external demand, an inventory overhang, and high household debt remain headwinds to the economy, improving domestic and export demands, a recovery of the critical tourism sector, and increased public spending should grant Thailand some momentum to grow next year.

In Vietnam, strong FDI inflows will bolster the pace of manufacturing production, leading to robust GDP growth in 2020. Meanwhile, inflation remains under the Vietnamese central bank's control.

While the Greater Mekong region has benefited and will continue to benefit from an increasing pace of urbanisation, "challenge for governments is to synchronise urban planning nationally and integrate aspects of economic policy, infrastructure development, connectivity, and human capital investment in their design," analysts of ANZ said, "so that the negative externalities of urbanisation do not cloud the benefits."