Despite global uncertainty related to political shifts in the West and a continued Chinese economic slowdown, Cambodia showed strong growth prospects for the next several years, according to the World Bank’s latest report.
The latest Global Economic Prospects report from the World Bank, titled “Weak Investment in Uncertain Times,” looked back on the previous year with a generally negative outlook, impacted by the unexpected election of Donald Trump in the US and the sudden Brexit vote in the United Kingdom to leave the European Union.
In Asia, slower Chinese economic expansion continued to pose a risk to growth, but had not affected Cambodia as much as previously expected, with both China and Japan maintaining strong levels of foreign direct investment (FDI) in the region, the report said.
The World Bank estimated GDP growth in the Kingdom stood at 7 percent for 2016 and forecasted growth between 6.9 and 6.8 percent for the next three years.
“Exports of goods provided support to growth in Cambodia, which enjoys sizable foreign direct investment into its garments sector,” the report said.
“Chinese investors continue to be heavily involved in various projects across the region and Japan remains another important source of FDI flows to several regional economies.”
The World Bank cited the need for Cambodia to strengthen its regulation of specialised banks and microfinance institutions (MFIs), which it said have contributed to a rapid growth of credit that was creating potential risks of financial instability in the Kingdom.
“Enhanced transparency, strengthened accountability, and more responsiveness of state institutions to the needs of the private sector would bolster investor confidence,” it said of Cambodia and similar countries in the region.
David Totten, director of Emerging Markets Consulting, noted that despite the attention given to slowing Chinese growth, Asia’s largest economy is still expanding in real terms, especially compared to developed economies in the West.
This has positively contributed to Cambodia’s economy and the World Bank’s forecast of high future real GDP growth in China should be an encouraging sign for the Kingdom, he added.
“As China shifts to higher value-added activities such as from manufacturing to services, or to more advanced manufacturing, you need to move the unsophisticated manufacturing somewhere else, hence we see China is the largest source of FDI in Cambodia,” he said.
He noted that all countries in the region that offer similar advantages to Cambodia, such as Myanmar, Laos and the Philippines, were “similarly bucking the global trend and forecast to grow via [China’s] regional value chain integration and accompanying cross border investment.”
Totten said that it was too early to infer the impact that recent political events would have on the global economy, including Cambodia, but in the near-term it would likely be minimal.
“The Brexit decision and the Trump rhetoric indicate, in the opinion of some observers, a significant change in the global system of relatively free trade,” he said.
“Clearly that introduces an element of uncertainty, but until the real terms of a Trump presidency or Brexit negotiations are known, the impact is likely to be small.”