Chief economist for Asia Paul Gruenwald predicts agriculture also
likely to see GDP contraction in 2009 as farming officials say its too
early to forecast yields
Agriculture will see a small GDP contraction this year, said ANZ Bank’s chief Asia economist.
ANZ Bank's chief Asia economist said Tuesday that Cambodia could expect a small contraction in GDP growth this year, which would also hit the agricultural sector, which the government has touted as an economic safety net.
Speaking Tuesday at ANZ Royal's head office in Phnom Penh, Paul Gruenwald said it remained difficult to forecast the Kingdom's economic prospects given a lack of reliable data, but he noted that the days of near double-digit GDP growth were over, at least in the short term.
"I think we can see perhaps a small negative number this year," he told the Post, endorsing recent predictions from the International Monetary Fund (IMF) that foresaw a 0.5 percent GDP contraction. "But certainly the risks are on the downside until we can have more confidence that the financial crisis is abating."
Gruenwald said he was surprised at the severity of the downturn in the garment sector, which has seen exports drop more than one-third in the first quarter year-on-year on the back of falling international demand, particularly from the United States, Cambodia's main export market.
"Clothing and textiles is usually something that holds up well," he said, adding that garments are necessities and discretionary goods.
Gruenwald said that Cambodia should expect tourism to suffer a prolonged downturn given that travel was a luxury, even if Cambodia is considered a less expensive destination.
"Tourism is one where there is probably a fair amount of downside," he said. "We don't expect those types of expenditures coming back until things get a bit more solid [in terms of a global recovery]."
Although Gruenwald acknowledged that there was a marked lack of data on agriculture - given its largely informal nature - he predicted "a mild negative this year" in terms of GDP growth.
The assessment was based on Cambodia's strong agricultural performance last year when a concerted effort was made to up production in the face of rising soft commodity prices. This year, the sector was therefore departing from a high base level, he said, meaning growth - given the economic climate - would be difficult to achieve.
ANZ Royal CEO Stephen Higgins noted, however, that accurate forecasts were problematic.
"With Cambodia, to pick your point number is very difficult," he said.
The risks are on the downside until we can have more confidence that the financial crisis is abating.
Gruenwald also acknowledged that evidence in the agricultural sector was largely anecdotal, a point acknowledged Tuesday by the Cambodian Centre for Study and Development in Agriculture (CEDAC).
"I have inspected various places - more rice crops have been planted [this year] but there are no figures available," said CEDAC President Yang Saing Koma.
"We expect the rice harvest will be higher this year [compared with 2008]," he added, noting, however, that it largely depended on rainfall which had been heavy early this year but was forecast to tail off more than usual towards the end of the wet season in October.
Ministry of Agriculture Secretary of State Chan Tong Yves agreed it was still too early to tell what the agricultural yield would be this year but said there remained potential to sell produce overseas.
The government has previously said that agriculture could absorb workers laid off due to the crisis, particularly from the garment industry, and would spur overall economic growth this year.
"The ministry is still actively helping to diversify agricultural products for foreign markets," said Chan Tong Yves.
Food prices fall
Farming has been hit by a slide in prices since last year when concern grew over inflation. In the first quarter, food commodity prices fell nearly 5 percent year-on-year.
Ministry figures showed that agricultural production as a percentage of total GDP rose from 28 percent after last year's harvest to 34.4 percent this year, said Chan Tong Yves.
The London-based Economist Intelligence Unit this month predicted that the sector would grow 3 percent this year as part of the total economy, which was projected to contract by 3 percent, it said.
The government, by contrast, has projected about 6 percent GDP growth for 2009.