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Unrest crimps growth

Protesters chant along Veng Sreng Boulevard in front of fires during protests that turned violent in Phnom Penh in early January
Protesters chant along Veng Sreng Boulevard in front of fires during protests that turned violent in Phnom Penh in early January. Pha Lina

Unrest crimps growth

Due to political instability and unrest in the garment sector, foreign direct investment has fallen and Cambodia’s economy is projected to grow only seven per cent this year, slightly down from 2013, according to a new report from the Asian Development Bank (ADB) released yesterday.

In the report, titled Asian Development Outlook 2014, ADB estimated that Cambodia GDP’s growth was 7.2 per cent last year. While growth revised downward, the ADB says inflation is expected to rise 3.5 per cent this year from three per cent in 2013, due to tightening of procedures at customs.

Poullang Doung, senior economics officer at the ADB, said that even if the inflation rate gets higher, it is still controllable, and that overall, the country’s development is positive.

“The economic growth rate of 7 per cent is already strong growth,” Doung told reporters yesterday at the hotel during a presentation of the report. “Even though the inflation rate increases to 3.5 per cent, it is still manageable and it is nothing to be worried about.”

The expected slowdown in 2014 is due mainly to political tension and garment strikes that have disrupted production late last year and early this year, according to the report. In January, military police killed at least four garment workers during a protest. The opposition Cambodia National Rescue Party is still boycotting parliament over the 2013 election results.

“Inflows of net foreign direct investment (FDI) were buoyant at $1.3 billion, though that figure represented a decline from the previous year, partly a result of political tensions after Cambodia’s national elections in July 2013,” the report said, without going into deep detail.

In 2014, industry growth driven by exports of garments and footwear to the United States and European Union is projected to ease to 8.7 per cent from 10.5 per cent the year before.

Services sector growth is expected to moderate to 7.1 per cent from 8.4 per cent.

Hiroshi Suzuki, chief economist at the Business Research Institute for Cambodia (BRIC), said that the growth rate of seven per cent is good for Cambodia, and it will help the government to reduce the poverty rate by at least 1 per cent annually.

The inflation rate in Cambodia is still less than that of neighbouring countries such as Vietnam (6.2 per cent), Myanmar (6.6 per cent), Indonesia (5.7 per cent) and Laos (5.5 per cent), he said.

Suzuki added that impacts on investment aren’t grave.

“There are some kinds of risks which could affect future investment; however, the political situation in Cambodia seems to be a very limited risk.”

According to the ADB, the prospect for economic growth in Cambodia looks brighter for 2015, supported by economic recovery in the EU and US, Cambodia’s main export markets.

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