Cambodia's economic growth could surpass previous estimates and hit 8.7% this year, Prime Minister Hun Sen said in a speech yesterday.

Earlier government forecasts estimated growth of 6% for 2011, though increasing garment exports and a strong recovery in the tourism sector have stimulated the economy above expectations, according to the prime minister.

“We originally projected the economic growth at 6% for the year. However, two months ago, the National Institute of Statistics predicted growth of 8.7%,” he said at a ceremony for National University of Management students at the Diamond Island Convention and Exhibition Center.

However, the Prime Minster  highlighted the Kingdom’s need to diversify its exports in light of the economic uncertainty facing the European Union and United States.

“The majority of factors affecting Cambodia are external rather than internal, such as the sovereign debt problems the US and some European countries are facing,” he said.

“While maintaining and enhancing [trade with] existing markets, we should also look at alternative markets, like China and other countries in the region, which absorb more agricultural products.”

He added that the Kingdom needs to further diversify its economy in order to maintain growth and avoid declines below 6% in the future.

“Depending on garment and footwear exports and the tourism sector alone is not enough to sustain the country’s economic growth. We have to expand the channels of growth,” he said.

While highlighting the potential for further growth, industry experts warned against Cambodia’s rising inflation. ANZ Royal Bank CEO Stephen Higgins, who earlier in the week told the Post the bank expected 7 percent to 8% growth in 2011, said it was due to a strong recovery in prime sectors.

“With exports in the garment sector up 20 percent in August and increasing capital investment in manufacturing, it’s no surprise that the economy is very strong at the moment.”

“Rising inflation remains a big concern that needs to be very carefully monitored,” Higgins said, adding that while conditions in Cambodia remain quite buoyant, global issues mean the outlook for 2012 is uncertain.

The Economic Institute of Cambodia, which estimated economic growth at 8.7 % in July, echoed Higgins’ sentiments.

“The impressive increase of garment exports, improvements in agri-business, especially rice milling, and the tourism sector bouncing back are helping the growth,” EIC researcher Khin Pisey said.

He added that it should take about six months for garment exports to be affected by the global downturn.

“[Garment] exports will be impacted next year, which means other sectors, such as tourism, agri-business and construction will play crucial roles in economic growth in the coming years.”   

However, Asian Development Bank senior economist Peter Brimble said he expects the slowdown of the global economy to have some effect on the Kingdom this year.

The “current volatility in global markets is expected to dampen the demand for Cambodian products in the second half of the year,” he said.

Still, “this is not expected to counterbalance the positive trends already observed.” 

In the first seven months of the year, garment and textile exports rose 43.3%, reaching US$2.33 billion. Meanwhile demand for agricultural exports, such as rice, cassava and corn, hit $245 million, a 186% year-on-year increase, according to data from the Ministry of Commerce.