The World Bank (WB) has marked up its projection for Cambodia’s real economic growth this year to 5.5 per cent – from the 5.2 per cent it forecast last month – predicting that rate to climb to around six per cent “in the medium term”.

“However, an extended slowdown in external demand could weaken export-oriented manufacturing, while continued global financial tightening might expose risks in Cambodia’s highly leveraged financial sector,” the Washington-based multilateral lender cautioned in a May 18 statement.

At a May 18 launch ceremony for the May 2023 “Cambodia Economic Update: Post-Covid-19 Economic Recovery”, WB country manager for Cambodia Maryam Salim affirmed that the Kingdom’s real economic growth accelerated to 5.2 per cent in 2022 – from 3.0 per cent in the previous year.

The economy is well on the recovery path, at first led by the export-oriented manufacturing industries’ robust performance, but now increasingly supported by services and agriculture, Salim said.

Recently-promulgated free trade agreements (FTA) have improved access to regional markets, unlocking a world of benefits for the agricultural community, she said, adding that increases in international visitors to the Kingdom, coupled with pent-up consumer demand, are speeding up the service sector’s contribution to economic output towards 2019 levels.

“Cambodia’s real growth for 2023 is projected to accelerate further, reaching 5.5 per cent. The outlook is, however, subject to downside risks.

“An extended slowdown in external demand could weaken Cambodia’s export-oriented manufacturing, which generates about 40 per cent of total employment in the industrial sector. Continued global financial tightening could affect the highly leveraged financial sector.

“A renewed oil price shock may stoke inflation and dampen domestic consumption. Domestically, concentration of domestic credit in the construction sector remains a key risk to financial stability,” Salim said.

Similarly, the International Monetary Fund (IMF) in mid-April pegged Cambodia’s annual real GDP (gross domestic product) growth rate at 5.8 per cent in 2023, 6.2 per cent in 2024 and 6.3 per cent in 2028.

“These upgrades were basically motivated by stronger projected growth in the tourism and service sectors, which is mostly credited to China’s reopening at end-2022,” Davide Furceri, the IMF’s new Article IV Mission Chief for Cambodia, told The Post in an interview last month.

However, despite the strong growth prospects for 2023, “there’s considerable uncertainty in the outlook”, he stressed.

“We have significant downside risks associated with a sharper-than-expected slowdown in the US and Europe. But there’s also upside potential, as the tourism sector may perform even better that our current projections.

“I believe the US accounts for 40 per cent of Cambodia’s exports, and the Euro area about 20 per cent. Thus, if these economies were to decelerate, this would lead to significant slowdown for Cambodia.

“Our estimates suggest that a one percentage point drop in US GDP growth would translate into a 0.5 percentage point decline in Cambodia’s GDP growth.

“These are significant numbers, and we’ve already seen exports contract in the first part of 2023 compared to last year. We expect that the US and Euro area economies will recover towards the end of this year going into the next. We also expect export growth to pick up at some point later this year,” Furceri added.

Delivering a presentation at the May 18 ceremony, WB senior economist for Cambodia Ly Sodeth shared that inflation has returned to pre-Covid levels, with the year-on-year rate reaching 2.2 per cent in February, as food and oil prices moderated.

He reported that January-February goods exports declined by 14.2 per cent year-on-year, of which he said 95 per cent are attributable to the US and EU markets, adding that GTF (garment, textiles and footwear) exports contributed 11.8 percentage points.

By comparison, provisional Customs (GDCE) figures show that Cambodia’s goods exports were to the tune of $3.285 billion and $7.234 billion in the January-February and January-April period, respectively, down 8.63 per cent and down 4.89 per cent year-on-year.

Sodeth said the total value of FDI- (foreign direct investment) financed projects approved in January-February was just $156 million, down 92.3 per cent year-on-year, and conceded that it may be too soon to predict the effects of China’s reopening on FDI inflows.

These figures suggest that the equivalent January-February 2022 value fell in the range of $2.006-2.046 billion.

“The risks are an extended slowdown in external demand, continued global financial tightening, and a renewed oil price shock. Domestically, concentration of domestic credit in the construction sector,” Sodeth recapped.

The Ministry of Tourism reported the number of international visitors to Cambodia in January-February at 837,446, which is equivalent to 67.28 per cent of the 1.245 million booked for the same time in 2019. Of these, 314,378 arrived by air, or 37.31 per cent of the 842,679 logged for January-February 2019.

A visitor in the context of these statistics is a person travelling to the Kingdom, “staying at least overnight and not exceeding a specific period for leisure, recreation, business and other legal tourism purposes; and not relevant to the purpose of permanent residence or any remunerated activities”, as defined by the ministry.