THE World Bank has readjusted upwards estimates for Cambodia’s GDP performance in 2009 after unexpected signs of improvement emerged in the economy late last year.
Economists who drew up the biannual economic update on East Asia and the Pacific, released by the World Bank Wednesday, estimated that the Kingdom’s GDP contracted by 2 percent in 2009, 0.2 percent less than an estimate five months ago.
This contrasts with the government’s official assessment that GDP expanded 0.1 percent last year. The government has previously rejected estimates of recession in the Kingdom. Other international analysts including the International Monetary Fund and the Economist Intelligence Unit have estimated contractions in GDP last year.
The World Bank report released Wednesday forecast GDP growth of 4.4 percent in 2010, up from a 4.2 percent prediction in November. Garment exports – Cambodia’s main earner – are expected to expand 2 percent this year, after contracting 16 percent in 2009.
Huot Chea, the World Bank’s country economist, told the Post via email Wednesday the adjustments were made after aspects of the economy “improved unexpectedly in the last quarter of 2009”.
A doubling of agribusiness exports, a halt in the decline in tourists arriving by air, and signs that domestic credit and inflows of foreign domestic investment had “begun rebounding” were indicators of change, he said.
“The other crucial point was that garment exports were previously expected to drop by a 20 to 25 percent range, but ended up by declining less than 20 percent,” he wrote.
The World Bank report said Cambodia’s economy suffered “a serious setback” after the global economic downturn, but “signs emerged [in] late 2009 that the winds were shifting”.
The adjustments also reflect feelings among World Bank economists that the region has weathered the credit crunch.
“East Asia has recovered from the economic and financial crisis, largely thanks to China,” the report said, a viewpoint reiterated by leading economists Wednesday.
Speaking via video from Tokyo, the World Bank’s chief economist for East Asia and the Pacific, Vikram Nehru, congratulated ASEAN leaders in advance of the 16th annual summit, to begin in Hanoi today, on their handling of the economic crisis.
Nehru advised leaders to stay on top of regional development through better trade facilitation and managed migration and likened the economy to a bicycle.
“You have to continue reforming or else you fall off,” he said.
He also advised developing economies like Cambodia to look towards middle-term economic goals in the year ahead.
The report likens Cambodia’s situation to that of Vietnam a decade ago, when Vietnam chose to open its economy to foreign investment and began ambitious structural changes that boosted fixed investment to 32 percent of its GDP.
The World Bank estimates Cambodia’s foreign direct investment will grow to US$725 million in 2010, up from $515 million in 2009 and nearly rebounding to 2008 levels, when investments came in at $795 million.
The report’s principle author, Ivailo Izvorski, said through videolink Wednesday that developing nations should continue to make structural changes and increase capacity to make the most of prospective growth.
“Now developing countries have to get used to slower growth of their exports,” he said. “Before the economic crisis we were in a bubble.”
In its report, the World Bank also warned Cambodia of potential challenges in the year ahead.
Cambodia’s growth forecast could be put at risk by “the fragility of the global recovery, the uncertain capacity of the economy to diversify and the limited scope for a stronger recovery in credit”.
Huot Chea said after Wednesday’s conference that Cambodia could further protect itself from external shocks by diversifying its export markets, especially in garments, which are currently concentrated in the United States, which was hit especially hard by the economic crisis.
Cambodia managed to significantly raise exports to markets including Japan and Laos last year. However, trade rose from a small base in most cases.