A general view shows building and property developments in Phnom Penh. Heng Chivoan
Singapore-based ASEAN+3 Macroeconomic Research Office (AMRO) on August 11 put Cambodia’s economic growth at a robust 5.0 per cent in 2022, thanks to high vaccination rates and strong fiscal stimulus packages, but warned of a slowdown in export orders from key buyers, especially the US and EU for textile-related goods in the second half of the year.
AMRO highlighted in a press release that the Kingdom’s economy has remained resilient.
“The early lifting of Covid-19 restrictions boosted domestic activity while strong external demand supported its recovery in the first half of 2022.
“As the economy recovers and Covid-19 becomes endemic, it will be vital to refocus policy toward structural reforms that will help improve the long-term growth potential of the economy,” the release said, noting that AMRO’s preliminary assessment comes after an Annual Consultation Visit to Cambodia from July 20 to August 3.
AMRO added that the mission was led by deputy group head and senior economist, Dr Jinho Choi, and that chief economist Hoe Ee Khor took part in the policy meetings.
Choi noted in the release that the latest growth projection for the Kingdom this year comes after an estimated 3.0 per cent expansion in 2021. “In line with Cambodia’s strategy of living with Covid-19, we expect the domestic economy to continue to improve, supported by high vaccination rates and enhanced health protocols.
“However, the outlook for exports will be challenging as the US and EU are expected to slow down sharply in the second half of this year, which could weigh heavily on the garment sector,” he said.
By comparison, in its June 2022 economic update for Cambodia, the World Bank projected that Cambodia’s economy would expand by 4.5 per cent this year, and noted in a follow-up statement that “while domestic economic activity and goods exports continue to recover from the slowdown caused by Covid-19, growth remains uneven, with the war in Ukraine driving inflation”.
On June 13, Prime Minister Hun Sen called for Cambodia to brace herself for potential fallout from economic downturns stemming from both Covid-19 and Russia’s military offensive in Ukraine.
“This is something that we must work together on to maintain good macroeconomic stability, prevent inflation, and maintain the purchasing power of the riel. Our economy has just recovered, after Covid, but it is unbelievable that the Russian-Ukrainian war has begun to put yet another burden on countries around the world,” he said.
AMRO continued in its release: “There are downside risks to Cambodia’s growth, with uncertainty stemming mainly from the slowdown in key export markets. Headwinds from a slowing global demand amid the Russia-Ukraine war and monetary tightening in US and Europe could impact Cambodia’s exports of manufacturing products.
“Given Cambodia’s high concentration in garment exports to the US and Europe, the export sector is vulnerable to demand shocks from these key markets.
“A sharper-than-expected slowdown and prolonged tight border controls in China could adversely affect Cambodia’s growth prospects, given the high reliance on investments and imported intermediate goods from China. Prolonged border controls in China will also delay the recovery of the tourism industry, since prior to the pandemic, more than a third of tourists came from China.
“Average inflation for the first half of this year was 6.6 per cent, compared to 2.9 per cent last year. Upward price pressures on energy and food products are expected to spill over to other goods, exerting broader inflationary pressures, with CPI [consumer price index] inflation forecasted to rise to 5.9 per cent in 2022,” it said.
