The World Bank has revised its 2020 growth forecast for Cambodia to -2.0 per cent as its main growth drivers – construction, tourism, and merchandise exports – continue to be affected by the Covid-19 pandemic, the economic update said.
The latest growth forecast revises a May report that set the figures at between -1 and -2.9 per cent, the World Bank said.
The report noted government fiscal intervention is unprecedented, amounting to five per cent of gross domestic product (GDP). The World Bank noted that authorities must prepare an effective post-Covid-19 economic recovery plan.
The pandemic has severely hit Cambodia’s key growth drivers in 2020, which had contributed more than 70 per cent of growth and 39 per cent of total employment in 2019.
Covid-19 has effectively stalled the construction and real estate boom that relies heavily on foreign investment.
Steel and cement imports in the first six months of 2020 contracted by 45.1 per cent and 8.2 per cent year-on-year respectively, as some of the large development projects were put on hold.
Due to travel restrictions and lockdowns, Cambodia’s tourism and hospitality sector have collapsed. International arrivals fell by 64.5 per cent in the first six months of 2020.
The global demand shock has significantly weakened Cambodia’s manufacturing export sector.
Exports of garment, travel goods and footwear products fell by 7.2 per cent during the first six months of 2020 while imports of raw materials used in the industry sank 85.4 per cent.
Imports eased significantly, reflecting shrinking domestic demand, according to the World Bank. As of the decline in exports more than offset imports, the current account deficit has widened and is projected to reach 12.8 per cent of GDP in 2020 – up from 10 per cent in 2019.
Gross national reserves are projected to remain at $19 billion in 2020 or seven months of imports.
Aaditya Mattoo, chief economist for East Asia and the Pacific at the World Bank, said many East Asia and Pacific countries have been successful in containing the disease and providing relief, but they will struggle to recover and grow.
“The priorities now should be safe schooling to preserve human capital, widening narrow tax bases to avoid cuts in public investment, and the reform of protected service sectors to take advantage of emerging digital opportunities,” Mattoo said.
He said the government must be prepared for a post-Covid-19 economic recovery. Close attention must now focus on potential regional investment and trade expansion arising from the Cambodia-China Free Trade Agreement.
“There is an urgent need to generate additional domestic value and more jobs. Strengthening domestic demand, protecting consumer purchasing power amid external shocks of public health and/or natural disaster is the way to move forward.
“It is imperative to continue monitoring vulnerabilities arising from a prolonged construction and property boom and the increase of credit provided to the construction and real estate sectors,” said the World Bank report.
The Asian Development Bank (ADB) revised its 2020 growth forecast for Cambodia last week to -4 per cent from an earlier projection of -5.5 per cent.
