The Singapore-based ASEAN+3 Macroeconomic Research Office (AMRO) has projected that Cambodia’s economy is set to grow by 5.3% in 2023 and 6.2% in 2024, continuing its gradual recovery. 

According to the group, the Kingdom’s economy has remained resilient, bolstered by a robust recovery in tourism, increased domestic consumption, expansion in non-garment manufacturing, strong foreign direct investment (FDI), and significant infrastructure investment.

The International Monetary Fund (IMF), following its Article IV mission to Cambodia in October, reported that the country’s economy is steadily recovering from the pandemic, though it faces both domestic and external challenges. 

According to the organisation, the growth rate accelerated to 5.2% in 2022 from 3% in 2021, driven by strong manufacturing and a resurgence in the services sector. The IMF projects further expansion at rates of 5.3% in 2023 and 6.0% in 2024.

“Cambodia’s economy is expected to continue its gradual recovery path. A robust tourism recovery, along with pent-up domestic consumption, will sustain the ongoing improvement in the service sectors, although growth in the garment sector is projected to moderate due to persistently subdued global demand,” AMRO’s latest outlook released on December 21 stated. 

“Cambodia’s path toward a strong economic recovery could be derailed by several near-term external risks and domestic vulnerabilities. Restoring monetary and fiscal buffers post-pandemic is essential to maintain resilient and sustainable growth. The government should continue to strengthen its policy framework and focus on structural reforms,” it added. 

The report mentioned that the garment industry remains weak due to decreased demand from the US and EU, while the real estate sector faces a cyclical downturn amid oversupply. 

The consumer price index (CPI) inflation continued its decline in the first half of 2023, averaging 1.2%, primarily due to lower global oil and food prices. 

“However, from July 2023, headline inflation began to show an upward trend, reflecting the base effect and a rise in global rice prices. For the entirety of 2023, the headline CPI inflation is estimated at 2.6%, expected to increase to 3.1% in 2024, in line with the forecast of stronger economic growth,” the report stated.

It noted there was a shift to a surplus of 1.7% of gross domestic product (GDP) in the first half of 2023 from a deficit of 25.7% in 2022. The change was attributed to a halt in gold imports, increased remittances and a tourism recovery. 

According to AMRO, despite global financial tightening, FDI inflows remained strong at 14.1% of GDP in the first half of 2023. The current account balance is expected to show a small deficit of 2.6% of GDP for 2023, as gold imports resumed since July. 

AMRO projects the deficit to widen to 5.1% of GDP in 2024 due to increased demand for imported goods.

“Cambodia’s path toward a strong economic recovery could be derailed by several near-term external risks and domestic vulnerabilities,” it stated.

The report identifies external short-term risks, including a potential slowdown in China, the country’s largest FDI contributor and a major tourism source, and a sharper slowdown in key economic partners like the US and EU. 

As the country’s inflation is closely linked with global commodity prices. A surge in global oil prices, due to geopolitical tensions, or a spike in global food costs triggered by severe El Nino events, could significantly increase the country’s inflation rate.

It noted that a prolonged downturn in the real estate sector could lead to financial distress, affecting the sector and the broader economy, especially through unregulated shadow banking activities. 

The country’s financial account also faces potential reversal risks in short-term funds due to increasing reliance on short-term external debt and non-resident bank deposits.

“Under the new government, a steadfast commitment to structural reforms is crucial for sustaining rapid economic growth. Cambodia’s dedication to implementing comprehensive climate change measures and embracing new technologies is essential for advancing the transition to a green and digital economy,” said AMRO.

It added that diversifying the economic structure could enhance the Kingdom’s resilience against external shocks and increase its participation in the global value chain. Strengthening the tourism sector with various support measures is also recommended to improve its appeal to foreign tourists.