A view of the Phnom Penh skyline. Hong Menea
Two international organisations have forecast Cambodia’s economic growth to be around 5.3 per cent this year as the economy continues to be impacted by lower than expected expansion in the industrial and agriculture sector in the first half (H1), stemming from the regional and global economic slowdown and the ongoing Russia-Ukraine War.
On September 20, the Asian Development Bank (ADB) reduced its growth forecast for 2023 to 5.3 per cent from April’s projection of 5.5 per cent. It maintained its projection for 2024, though.
Inflation forecasts would stay the same this year and next year despite quarterly fluctuations in international fuel prices.
According to the bank, the exports of garments, footwear, and travel goods fell by 18.6 per cent year-on-year in H1, partly offset by a 22.9 per cent increase in exports of goods other than garments, namely vehicle parts, solar panels, and furniture.
Imports of construction materials dropped by 6.3 per cent over the same period, reflecting weak recovery in construction.
Better growth prospects in major advanced economies should improve Cambodian exports in the second half (H2), pointing out that the projection for industry output growth in 2023 has been cut from 5.8 per cent to 4.8 per cent, although output is expected to expand by eight per cent in 2024.
“Risks to the outlook remain tilted to the downside. They include weakened growth in advanced economies, lower tourist arrivals and foreign direct investment inflow, any prolonged tightening of global financial conditions, rising energy prices, concerns over high private debt and domestic financial stability and extreme weather worsened by climate change,” it said.
Meanwhile, Singapore-based ASEAN+3 Macroeconomic Research Office (AMRO) on September 19 expects Cambodia’s growth to increase to 5.3 per cent in 2023 from 5.2 per cent in 2022. The economy continues to recover solidly on the back of a strong rebound in the services sectors but the manufacturing sector, especially the garment sector, struggled with external headwinds.
It said Cambodia’s growth outlook is highly contingent on external risks, particularly a weakening in the global economic recovery and a renewed surge in global commodity prices.
“A robust tourism recovery, alongside pent-up domestic consumption, will sustain the ongoing economic recovery,” said AMRO principal economist Jinho Choi. “Growth is expected to strengthen to 6.2 per cent in 2024 on the back of resilient consumption and a recovery in garments exports, reflecting a turnaround in global manufacturing.”
AMRO pointed out that Cambodia’s Consumer price index (CPI) inflation spiked to an annual average of 5.3 per cent in 2022 and eased significantly to 1.2 per cent in the first half of 2023. The external short-term risks stem from a faltering economic growth in China, the largest contributor to foreign direct investment (FDI) and tourism.
“Cambodia could also be adversely affected by a sharper slowdown of its major economic partners such as the US and EU. A renewed surge in global oil and food prices, driven by a combination of heightened geopolitical tensions and a severe El Nino weather pattern, could cause Cambodia’s inflation to spike again,” it added.
A prolonged slump in the real estate sector could lead to financial distress and put pressure on the financial sector and the broader economy.
Circling back to the ADB, it noted that the agriculture sector experienced tepid growth this year due to milled rice exports which grew 12.4 per cent in H1 compared with the same period last year while rubber exports declined 9.9 per cent, and banana exports by 10.3 per cent. The forecast for agricultural growth in 2023 and 2024 has been revised down to 0.9 per cent from 1.1 per cent, and 1.1 per cent from 1.2 per cent, respectively.
The services sector beat expectations in H1, mainly as tourism recovered strongly, supported by Cambodia’s hosting of the Southeast Asian Games earlier this year, while bank credit, in the first five months, to wholesale and retail trade rose by 12.5 per cent year-on-year, transportation by 9.6 per cent, and hotels and restaurants by 7.4 per cent.
The forecast for growth in services in 2023 is revised up to eight per cent from 7.3 per cent, although sector growth is expected to ease to 6.5 per cent in 2024.
Merchandise imports fell by 22.9 per cent from last year, with imports of fabric declining by 17.9 per cent, fuel (10.0%) and vehicles (26.9%). With the gradual normalisation of merchandise trade to pre-pandemic levels and upward trends in tourism receipts and private transfers, the current account deficit is expected to narrow in 2023 and 2024.
Foreign direct investment inflow increased by 41.6 per cent year-on-year in H1 to $2.3 billion, helping to push gross international reserves from $17.8 billion at the end of 2022 to $18.4 billion at the end of June 2023.
