Citing an economic downturn that defied the worst expectations, the Asian Development Bank predicted yesterday that Cambodia’s economy will shrink by 1.5 percent this year, a revision of a rosier forecast of 2.5 percent growth made by the ADB less than six months ago.
The ADB’s most recent prediction falls in line with the World Bank, which in April predicted a recession with a 1 percent contraction in the Cambodian economy this year. In March, the International Monetary Fund also predicted negative 0.5 percent growth for the year, though it will release revised figures today.
The negative predictions follow years of robust GDP expansion in Cambodia. Growth last year reached 6.5 percent after 10 years when GDP averaged about 10 percent annually.
The prediction in the ADB’s Asian Development Outlook 2009 Update, which was released yesterday, states, “A sharper than expected downturn in clothing exports, construction activity, and tourism arrivals has prompted a downward revision in the GDP forecast” for Cambodia.
“US Department of Commerce data shows that Cambodian clothing exports to the US dropped by 27% in the first five months of 2009 from the corresponding period in 2008. Order books for clothing in May were significantly lower than a year earlier. Tourist arrivals fell by 3% in the first 4 months of 2009. The decline in construction activity was a consequence of falling FDI [foreign direct investment], notably from Korea,” the report states.
The ADB report also revised its prediction for GDP growth in 2010, lowering the forecast from 4 percent to 3.5 percent and attributing this positive growth to predicted worldwide economic recovery that will create demand for tourism and garments.
ADB Country Economist Eric Sidgwick said that it is not yet clear whether the Cambodian economy is still in decline at present or has begun to recover.
“Any decline in GDP is serious in terms of its impact on people’s standard of living, employment, and poverty reduction as the growth rate of the population is positive,” Mr Sidgwick wrote in an e-mail.
Indications of a slumping economy are clear in Cambodia’s main industries.
Garment exports overall, which includes the EU as well as the US and elsewhere, fell 24 percent in the first seven months of this year, according to the Garment Manufacturers Association in Cambodia.
For the first six months of 2009, tourist arrivals continued to decline, with minus 1 percent growth overall, though by July total visitors had increased by a meager 0.29 percent compared to last year, according to the Ministry of Tourism.
Chan Sophal, president of the Cambodian Economic Association, said that GDP growth may actually fall below the ADB’s prediction.
“The impact [of the global economic crisis] has been more serious than expected earlier, than projected at the end of 2008 or early 2009. In my opinion this minus 1.5 contraction is a little bit optimistic,” Mr Sophal said of the ADB’s forecast. While Mr Sophal predicted 5 percent growth in agriculture production this year, he also cast doubt on the idea that farm production alone could keep Cambodia’s economy growing overall in 2009, a scenario which some, particularly in government, had predicted.
“The other sectors appear to have contracted much more seriously,” he added.
Hang Chuon Naron, the Ministry of Finance’s secretary general, said the government is revising its most recent prediction of 2 percent growth for this year, and he would not comment on the ADB figures.
Kang Chandararot, executive director of the Cambodia Institute for Development Study, said that he disagreed with the ADB findings, noting that low inflation and growth in agriculture production would help lead to 3 to 3.5 percent growth by the end of the year. Still, he said, Cambodia has not yet begun a recovery from the economic crisis just yet.
“[South] Korea’s economy is expected to recover at the end of the year, through its electronic products; this could provide good prospects for Cambodia’s economy in terms of FDI in the construction sector,” Mr Chandararot wrote.
Ken Loo, secretary-general for GMAC, said the outlook for garment factories will be clearer after Christmas when US shoppers typically give the clothing industry a seasonal boost.
“US retail numbers are critical to assessing if the apparel industry is coming out of the woods or still in the dumps,” Mr Loo said.
John Brinsden, vice chairman of Acleda Bank, also said that economic growth in the provinces in the form of agricultural production would ensure positive growth in 2009. Though rural economic data is difficult to come by, Mr Brinsden said anecdotal evidence and good weather suggest positive agricultural growth this year.
“We’re inclined to be a little bit more optimistic than the ADB report and we’re interested to see what the IMF comes up with,” he said.