ADB Predicts GDP Growth of 7.2% in 2013

The Asian Development Bank (ADB) on Wednesday maintained its projection that economic growth in Cambodia would reach 7.2 percent this year, despite some concerns among economists that foreign investment could take a hit if the current political deadlock is not resolved quickly.

In its periodic review of the economy, the ADB said that strong growth in the garment and construction sectors would lead to an even stronger gross domestic product (GDP) rate of 7.5 percent in 2014.

According to the report, exports of garments and footwear to the U.S. and the European Union increased by 11.3 percent to $2.3 billion during the first six months of the year compared to the same period in 2012, while exports of milled rice doubled to $122 million.

“Approvals for construction projects went up sharply to $1.9 billion during the same period, whereas credit for the construction sector grew by 46 percent in June from a year earlier,” the ADB said in a statement.

The economic update also showed that tourist arrivals reached 2.1 million in the first six months, up by 19.1 percent from the previous year. In 2013, the service sector as a whole is projected to grow by 7 percent and agricultural output by about 4 percent.

The projected growth rate gave Cambodia the highest GDP rate in the region apart from Laos, where GDP growth is estimated to reach 7.6 percent this year.

“In the past few years, the economy has seen quite a lot of changes in the existing sectors that contribute to the resilience of Cambodia to external shocks, as well as maintaining competitiveness in response to changes in the global business climate,” said Peter Brimble, senior country economist for the ADB.

“First, agriculture has started to increase levels of processing; second, the garment sector has be­gun to move up the value-added chain with new entrants from China, Thailand, Europe and Vietnam producing increasingly sophisticated products; and third, the tourism sector is attracting increasing numbers of visitors from Asia, not to mention higher spending tourists from the west.”

The report also states agricultural output is expected to rise, as long as the rainy season does not cause severe flooding of crops.

“Weather was generally favorable for agriculture in the first half and, assuming no severe droughts or floods over the rest of 2013, agricultural output is expected to in­crease by about 4 percent,” it states.

Flooding is currently affecting farmland in 10 provinces, though the amount of damage to this year’s rice harvest is not yet known.

Chan Sophal, an independent economic analyst, said that the growth prediction of 7.2 percent for this year and 7.5 percent for 2014 was realistic as demand from foreign markets for Cambodian goods showed no signs of decreasing.

“The recovery in Europe and the U.S. means the consumption of goods produced in Cambodia, especially garments and foot­wear, will be on the rise. Also, demand for agricultural products produced here will increase for export to Europe,” he said.

Mr. Sophal, however, questioned how long the construction sec­tor’s rapid growth would continue.

“We have a boom in the construction sector, and I wonder how long we can grow without causing a bubble,” he said.

In 2009, the construction sector—which had been growing on the back of speculative land deals for years—came tumbling down leaving the sector stagnant for the best part of the next three years.

Srey Chanthy, interim president of the Cambodian Economic Association, said the ADB’s assessment of growth in 2014 is likely accurate, but that this year’s 7.2 percent is a bit off due to the current political climate.

“It’s likely 7 percent,” he said. “Given the current [political] situation, more investment cannot be expected or will be slowed.”

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