Meat vendors at their stalls in a Phnom Penh market in January 2023. Hong Menea
The International Monetary Fund (IMF) projected that Cambodia’s economic growth will reach 6.1% this year, an increase from its previous estimate of 5.3% for 2023, an upturn attributed to the recovery of regional and global economies.
In its most recent forecast, published on January 31, the fund maintained its growth outlook, adding that it expected the country’s inflation rate to be around 3% this year.
While the projection aligns with the estimates of various other international financial institutions, the National Bank of Cambodia (NBC) has forecast a slightly higher growth rate of 6.4%.
Krishna Srinivasan, director of the IMF’s Asia Pacific Department (APD), spoke at a recent press conference on the regional economic outlook.
“For the world economy, the IMF now projects [inflation] growth at 3.1% for 2024, the same rate as in 2023. For 2025, we anticipate a modest increase to 3.2%. Additionally, global inflation is projected to decrease from 6.8% in 2023 to 5.8% in 2024 and further to 4.4% in 2025,” he stated.
Regarding Asia, the IMF has revised its growth forecast upwards for both 2023 and 2024. The regional forecast for this year has been increased to 4.5% from 4.2% in October.
Srinivasan highlighted that a more supportive external environment, notably robust growth in the US, reinforces domestic resilience in Asia.
He said the demand for technology, computers, electronics and optical products has surged recently.
“Overall, Asia is on track to contribute, once again, two-thirds of global growth in 2024,” he said.
Srinivasan explained that in post-pandemic Asia, price increases were generally less intense than in other parts of the world. With significant progress in emerging Asian economies, many regional central banks are expected to meet their inflation targets in 2024.
He added that, assuming policymakers maintain their course until inflation is firmly re-anchored, there may be room for monetary easing later in the year. However, he cautioned that significant risks remain.
“A larger and more protracted correction in China’s property sector could further reduce domestic demand, particularly if accompanied by stress in local government finances. This would also lessen demand for the region’s exports,” he warned.
Optimism amid risk mitigation
On a more optimistic note, Srinivasan suggested that stronger-than-expected policy support in China could enhance demand and create positive regional spillovers.
Nonetheless, he warned of volatile financial conditions, emphasising that tighter-than-anticipated conditions in the US or Asia could strain heavily indebted industries and economies.
“Also, the rising risks of geopolitical fragmentation are particularly concerning for Asia, given the region’s deep integration into global trade. We are already witnessing negative impacts in the form of longer and less efficient supply chains. The prospect of higher shipping costs further amplifies the risks for trade,” he said.
“Now, what should policymakers prioritise? In our view, this is a time to strengthen the resilience of Asia’s economies. Fiscal consolidation is key to restoring buffers and safeguarding debt sustainability,” he added.
The ADP director explained that in 2023, budgetary balances in Asia improved slightly, but the consolidation was slower than the IMF had anticipated. Thus, further fiscal tightening will be necessary.
“Strong financial supervision and systemic risk monitoring are needed to safeguard against potential financial sector vulnerabilities. Finally, structural reforms are imperative to boost productivity and mitigate challenges from global de-risking, while accelerating a green transition is essential for sustainable growth,” he stated.
NBC highlights risks
NBC governor Chea Serey stated last weekend that the world economy continues to face numerous uncertainties, including geopolitical tension and the risk of global political division.
She noted that this is due to expectations of monetary policy stabilisation in major developed countries following the reduction of inflation to target levels.
“Capital flows may fluctuate with the pace of monetary policy normalisation and could lead to uncertainty over investment flows and exchange rate pressures. In this situation, the Cambodian economy may continue to face high external risks,” she said.
Serey noted internal risks also pose challenges, including the weak recovery of the construction sector and declining demand in the real estate sector, mainly due to the real estate crisis and slowing economic growth in China, a major investor for Cambodia.
She said low inflows of foreign investment into the real estate industry will likely result in a decrease in revenue sources, which also support domestic demand in the sector.
“Despite these challenges, the Cambodian economy is optimally projected to grow at around 6.4% in 2024, largely buoyed by the continued growth of the services sector, especially tourism, and the recovery of the manufacturing sector, while agriculture, construction and real estate continue to see low growth,” she added.
According to Serey, in support of the government’s policy of strengthening growth and maintaining macroeconomic stability, the central bank will continue to pursue prudent monetary policy, strengthen the development of the banking system, improve the efficiency, security and integration of the payment system and launch the necessary proactive policies and supportive measures in accordance with the economic situation and policies of the government.
