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World Bank forecasts strong growth barring major disruptions

The capital’s Exchange Square, where the World Bank has its offices, in August 2017. post staff
The capital’s Exchange Square, where the World Bank has its offices, in August 2017. post staff

World Bank forecasts strong growth barring major disruptions

Cambodia’s economy is expected to grow by 6.9 percent this year according to a report issued by the World Bank, while the report’s authors also acknowledged that several national and global risks could disrupt their prediction.

“Our base projections here anticipate a certain set of conditions, and in Cambodia we are assuming the election will take place as planned and will not destabilise the economy,” said Sudhir Shetty, the World Bank’s chief economist for East Asia and the Pacific, referring to the national election scheduled for July.

“There is the possibility there may be greater instability as a result in the future, after the election – and the growth we anticipate for Cambodia does not account for that,” he said.

Cambodia’s forecasted growth rate was the highest of the 14 countries analysed in the report, titled “Enhancing Potential”, and this year’s forecasted growth for nine Asean countries, excluding Singapore, was 5.4 percent.

Risks to those projections could arise in the near future, and Shetty warned that rising tensions between the United States and China could have a significant impact on economic growth across Southeast Asia if it led to tariffs on Chinese exports to the US.

Southeast Asia has developed a strong value chain of production for Chinese products, he said, and any negative impacts associated with tariffs placed on those products would ripple across the region.

“In 2018, we’re looking at global growth higher than any year since 2010 – but in our base case, the global economy is really firing on all engines,” he said. “This threat on a range of products injects uncertainty into that view of the global economy.”

The report notes several things that boosted Cambodia’s economic growth last year, including a rise in tourist arrivals and increased agricultural output due to favourable weather conditions.

However, it also notes that growth in the garment industry slowed to 7.7 percent last year, compared to 8.4 percent the year before. And while inflation and credit growth declined, credit to the construction and real estate sector increased rapidly – growing at 37.1 percent in November 2017, up from 28.4 percent in May 2017.

“Downside risks to the outlook include threats associated with the construction boom . . . and declining external competitiveness,” the report says. “As real wages rapidly increase, Cambodia’s external competitiveness, which primarily relies on cheap labour, is being eroded.”

Those concerns echo conclusions made by the Asian Development Bank in its economic outlook report earlier this week. That report noted that as wages in Cambodia rise, the country will have to make reforms to ensure it remains competitive in the region.

To address the risks associated with the rapidly expanding microfinance sector, the government should focus on increasing regulations and guidelines for lending, according to Miguel Eduardo Sanchez Martin, the World Bank’s senior country economist in Cambodia.

“In general, we think the Cambodian economy will continue to grow in 2018,” he said. “But of course, there are always going to be risks.”

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