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Economy eases off the pedal

Labourers work on a construction site in central Phnom Penh earlier this year. Construction contributed about 2 per cent of the Kingdom’s 7.1 per cent GDP growth in 2014, more than the garment sector and agricultural exports combined.
Labourers work on a construction site in central Phnom Penh earlier this year. Construction contributed about 2 per cent of the Kingdom’s 7.1 per cent GDP growth in 2014, more than the garment sector and agricultural exports combined. Vireak Mai

Economy eases off the pedal

Cambodia's economy is expected to grow by 6.9 per cent in 2015, driven by the construction sector, while traditional growth areas, such as garments and tourism, are expected to see a relative slowdown this year, according to a World Bank economic report.

Yesterday’s update on the status of East Asia and Pacific economies mirrors the World Bank’s Cambodia Economic Update released in April, which also estimated 6.9 per cent GDP growth for 2015, as compared to the 7.1 per cent achieved in 2014.

“Cambodia will see slower growth relative to what it’s seen in the past. However, it will continue to grow around 7 per cent,” said Sudhir Shetty, chief economist at the World Bank for the East Asia and Pacific region.

According to Shetty, the easing off is due to increased price pressure on garment exports and sluggish agricultural growth, given this year’s lower rice production numbers.

The report also finds that of the 7.1 per cent growth seen last year, 2 per cent of this growth was contributed by construction-related activities, higher than garments and agricultural exports, which were 1.2 and 0.1 per cent, respectively.

“There is risk associated with this growth and so far there is no bubble, but we have to watch out for the bubble because construction is driven by FDI,” said Sodeth Ly, country economist at the World Bank in Cambodia.

Ly said this “booming” growth was also reflected in the 39 per cent growth in construction material imports for the first half of this year, with imports of cement and steel increasing 8 and 32 per cent respectively over the same period a year earlier.

While the Kingdom has seen a large influx of construction-related investments for the last six months of 2014 and first half of 2015, trends suggest there could be a slight slowdown going forward, according to Sung Bonna, director of local realty firm Bonna Realty.

“Now it seems to be slowing a little. Starting from the second semester we may see it slow down,” Bonna said, adding that it was difficult to estimate the effect of economic headwinds in China on construction investments.

Investments to Cambodia increased substantially last year on account of developers diverting their funds from China and Singapore, which were showing signs of oversupply, Bonna added. But given the current high supply in the Kingdom, he said, ASEAN economic integration due by the end of the year would determine demand going forward.

“Local demand has slowed down and overseas demand has also maybe slowed,” he said. “In terms of future supply, it could be high and of concern.”

The report also highlighted the impact of adverse climactic conditions on the agriculture sector, with rice cultivation being delayed on account of the late rainfall and harvests also seeing a decline in the first half.

Wet season rice planting as of July had dropped 5.7 per cent to 1.7 million hectares, compared to the same period last year, and rice harvests were down a substantial 32 per cent to 191,000 tonnes, according to the report.

Mey Kalyan, senior economic advisor to the Supreme National Economic Council, said the robust economic growth numbers were encouraging, despite hopes for 7-plus per cent growth, but agriculture was becoming a concern for the economy.

“It [agriculture] is very important for poverty alleviation and keeping the balance between the rich and the poor,” he said.

Kalyan added that while rice exports were holding up the sector currently, there was a push to increase diversification of agricultural products, though the speed was not up to expectations.

“So far, agriculture has been on a receiving path with donors providing the investments, but we need a new strategy now,” he said, adding that the government was working on a project to help boost the agricultural sector.

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