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Logo of Phnom Penh Post newspaper Phnom Penh Post - Growth to hit 2.5pc: ADB

Growth to hit 2.5pc: ADB

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090401_14.jpg

Bank cites agriculture as key potential sector to bolster the flagging economy; but contracting construction industry could hurt growth

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TRACEY SHELTON

A welder works on a building site in Phnom Penh. ADB cited the construction sector as a drag on GDP growth in 2009 after foreign investors pulled out with the onset of the financial crisis.

A STRONG agriculture sector may help the Cambodian economy expand by 2.5 percent, according to growth figures released by the Asian Development Bank (ADB) on Tuesday.

That falls below government estimates of 6 percent growth for the year, but represents the most optimistic assessment among major international organisations.

"[Slower growth] shows how vulnerable Cambodia is to external demand," said Eric Sidgwick, ADB's senior country economist for Cambodia.

He cited slowing garment exports due to lower European and American demand, and competition from low-cost producers in Vietnam and China.

The construction sector would drag down growth because of a fall in Korean investment, while tourism would take a hit from the global slowdown and the weaker South Korean won, he added.

The ADB gave a largely negative assessment for the banking sector, but added that non-performing loans were not yet a serious problem. "Overall, the banking sector is good," said Sidgwick.

That assessment differs from reports by the IMF and World Bank in February that said non-performing loans, low liquidity and poor transparency could be a problem for a number of unnamed banks in 2009.

The agriculture sector would be Cambodia's major driver of growth, according to ADB estimates, with production exceeding last year's 4.5 percent growth due to better irrigation and lower fertiliser prices.

But with the economy entering uncharted territory, the ADB warned growth could fall below projections.

"Downside risks to the 2.5 percent [growth projection] are much higher than the upside risks," said Sidgwick.

He added that the government would have little scope to stimulate the economy. "There is not much room for government policy to have an impact in 2009, but it could have an effect next year," he said.

A local expert agreed with the ADB's favourable outlook on agriculture, saying the country is only beginning to see the sector's growth potential.

"Government policies to strengthen the [agricultural] sector are starting to pay off.... Growth of the sector will depend on the progress in organic farming this year," said Kasie Noeu, chairman of the board of directors at the Peace and Development Institute.

Economist Kang Chandararot from the Cambodia Institute of Development Study said even the ADB's forecast was too gloomy.

"I don't think [growth] will be that low - I expect it will be closer to 4 percent.... There are a lot of opportunities for the government to stimulate the economy through rural development programs," he said, adding that agriculture would drive growth for 2009.

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