Cambodia’s economic growth will slow slightly this year, tamped down by political and labor market uncertainties and rising inflation, the Asian Development Bank said in its 2014 economic outlook report, released Tuesday.
Growth is expected slip to 7.0 percent in 2014, a significant downward revision from the bank’s October estimate of 7.5 percent growth this year. Cambodia will still have Southeast Asia’s third-highest growth rate, below only Burma and Laos.
Last year, Cambodia’s economy expanded by 7.2 percent.
The expected downturn in growth of the country’s gross domestic product is a result of falling investor confidence due to disruptions in Cambodia’s key industry—garments and textiles—and the unresolved political deadlock since July’s national election.
Seven people have been killed by government forces in protest-related violence since the election.
“Political tensions since national elections last July, together with strikes for higher wages by garment workers, dented investor confidence and disrupted some production of garments and footwear in late 2013 and early 2014,” the bank report says.
“Political uncertainty and the risk of further labor unrest suggest some dampening of investment this year,” the report continues. “The uncertainties could weigh as well on tourism and real estate activity.”
The bank predicts growth will pick up again in 2015, at a rate of 7.3 percent, on the back of “buoyant exports, growing agriculture and services, supported by strengthening economic recovery in the major industrial economies.”
Inflation is set to creep up by 0.5 percent to 3.5 percent in 2014 due to the government’s efforts since November to increase revenue by rooting out informal payments on import duties and imposing legal taxation.
“The tightening of customs duty collection will maintain some upward pressure on import prices into 2014,” the report says. “Inflation was 4.6 percent year on year in January 2014 but is expected to average 3.5 percent for the year as a whole, up slightly from 2013.”
The garment industry accounts for about 80 percent of Cambodia’s exports. In 2013, garment exports jumped by 20 percent to $5.53 billion
There were a record 147 strikes in the garment sector last year, up 21.5 percent on the previous year. A group of six unions organized nationwide strikes and protests, which began in late December and lasted for more than a week, causing hundreds of factories to temporarily shut down. A government report released last week said the unrest cost the garment industry $72 million.
Ken Loo, secretary-general of the Garment Manufacturers Association in Cambodia, said that the number of strikes has skewed investor perceptions of the industry.
“There has been a significant drop in investment in the industry because the impression that a minority of unions is creating is very negative and investors are waiting for peace of mind,” said Mr. Loo. “We are trying our best to create a real picture of the industry.”
Eric Sidgwick, Asian Development Bank country director for Cambodia, said at a conference launching the bank’s outlook report that improvements to the country’s workforce must occur for Cambodia to remain competitive within the Asean Economic Community, and to develop higher value industries.
“The challenge is in terms of a skilled and educated workforce compared to the region. So Cambodia has done well with labor intensive work but as the country wants to integrate, it will have to go into higher value added activities to complement or compete with the value added chain,” said Mr. Sidgwick.
Independent economist Srey Chanthy said that with growth all but guaranteed in the coming years, the government should focus its efforts on the wealth distribution.
“The question is how the fruit of this growth in the future can be redistributed to the poor and especially the country’s hundreds of thousands of workers,” Mr. Chanthy said.