Cambodia's gross domestic product will grow only 6 per cent this year, the World Bank said yesterday, as a result of heavy flood damage and economic turmoil in the West. The bank had previously forecast GDP growth of 6.5 per cent in March.
A slowdown in the agricultural sector – which has averaged 5.1 per cent growth since 2006 – was the primary reason for the revision, World Bank economist in Cambodia Huot Chea said yesterday.
Originally expected to grow by 4 per cent this year, agricultural growth will slow to 1.5 per cent, according to the World Bank’s East Asia and Pacific Economic Update report, which was issued yesterday.
Agriculture accounts for about one-third of the Kingdom’s economic output, according to the biannual report. The flooding in September and October threatened up to 390,000 hectares of rice seedling and paddy, or more than 13 per cent of Cambodia’s annual rice crop, the report said.
GDP growth for 2011 cannot be fully assessed before all damage to Cambodia’s rice crop is accounted for, Ministry of Economy and Finance secretary of state Hang Chuon Naron said yesterday.
“The government is still in the process of evaluating how much rice is affected by the flood. I think this [expected flood damage] is what’s driving the World Bank’s projection,” he said, adding that a preliminary estimate of flood damages revealed at least 8 per cent of the country’s annual crop had been affected.
A price tag on flood damage could surpass US$200 million, according to a statement made last week by Minister of Economy and Finance Keat Chhon. More than 240 people died in the floods, the World Bank report said.
Peter Brimble, senior country economist at the Asian Development Bank (ADB), said the World Bank’s revision was understandable.
“Given the likely impact of the floods and its impact on rice, that sounds very sensible to me,” he said, adding that the unpredictability of rice prices in the wake of the floods could further stymie growth.
GDP projections saw wide fluctuations in 2011. ADB estimated 6.8 per cent year-on-year growth earlier this year, while Finance Keat Chhon announced a government downgrade to 6 per cent from 7 per cent last month. Prime Minister Hun Sen put the figure at 8.7 per cent in September.
Barring a deterioration of the international economy, yesterday’s World Bank report said the Kingdom would grow at 6.5 per cent during 2012 and 2013. Inflation is expected to hit 7.5 per cent by the end of 2011, driven primarily by the price of food.
A recovery in international finance may still be years off, however, University of Cambodia business and economics lecturer Chheng Kimlong said yesterday.
“A flight of capital and lack of investor confidence in Western countries could negatively impact Cambodia in the future,” he said.
Many sectors continued to see strong growth. Garment and textiles – Cambodia’s primary exports – continue to grow rapidly despite Western economic woes, according to the World Bank report. The exports increased by 30 per cent during the first 10 months of the year, according to Ministry of Commerce data. Foreign direct investment is expected to increase by 15 per cent this year, to nearly $900 million, the World Bank report said. Cambodia’s current account deficit is also expected to decrease half a percentage point to 13 per cent of GDP in 2011, according to the report.