Cambodia’s economy remains robust and will likely grow 7 percent this year as well as next year, but risks such as the country’s post-election uncertainty and sluggish international growth could yet cause fluctuations, the World Bank said Monday.
In its semi-annual East Asia and Pacific Economic Update, the World Bank said that Cambodia’s economy overall “remains positive,” with most growth centered in the agricultural, garment, construction and tourism sectors.
“Overall macroeconomic outlook remains positive…[gross domestic product] growth has been driven by a sustained strong agricultural sector growth, resilient exports, rebounding construction activity, and a robust tourism sector,” it says.
“The economic outlook, however, faces some risks. It is unclear how big an impact the political uncertainty post elections is having on foreign direct investment and growth,” the report continues.
According to the bank, the ability of some sectors to adapt to the demands in foreign markets has paved the way for sustained growth in Cambodia. The garment export industry, for example, adapted to foreign markets by “focusing on lower-end garment products for the U.S. and higher-end products for the European Union,” according to the report. Similarly, Cambodia’s diversification of its tourism sector to attract arrivals from Eastern Europe, East Asia and the Pacific regions fueled the market earlier this year.
“During the first six months of 2013, garment exports accelerated further, growing 18 percent year-on-year, while the tourism sector continues its high-growth trajectory, with a tourist arrival growth rate of 19 percent [year-on-year],” the report says.
In the agricultural sector, rice paddy cultivation has increased in the past four years, according to the report, and in June, the construction sector skyrocketed, reaching $1.4 billion in approved projects up from $126 million in January, bringing the total investment in construction to $1.94 billion.
But GDP could waver as the country tries to resolve post-election disputes between the ruling CPP and opposition CNRP, and as China’s economy dawdles and the U.S. shutdown and Europe’s sluggish growth continue, officials said.
“Cambodia’s economy remains robust despite challenges,” said Enrique Aldaz-Carroll, senior country economist at the World Bank in Cambodia.
“There are global and domestic challenges. There’s the uncertainty of the U.S., and domestically, the uncertainty of floods [on the agricultural sector] and the post-election situation. At this point in time, it is too early to say what this election has [and will have] on the GDP.”
But the projected 7 percent is a dip from the 7.3 percent predication made last year by the World Bank, and it is also a drop from the Asian Development Bank’s (ADB) prediction on Wednesday of 7.2 percent GDP growth this year and 7.5 percent next year. During a six-hour speech last month, Prime Minister Hun Sen predicted economic growth of 7 percent for this year.
Mr. Aldaz-Carroll said the differences in predictions are acceptable.
“It is within an accepted range because of the country’s uncertainties,” he said of the World Bank’s percentages.
Srey Chanthy, interim president of the Cambodian Economic Association, said that the World Bank’s predictions appear to be on track.
“This time, the World Bank has made a better prediction than the ADB. Seven percent may be reachable based on the recent boom of garment exports,” he said. “But they need to take into consideration the political situation and flooding. They have been most optimistic on agriculture, in addition to garments. And this year, agriculture is badly affected by flooding.”
Flooding in the past two weeks has affected 16 provinces, though the amount of agricultural damage is not yet known.
Peter Brimble, the ADB’s deputy country director and senior country economist, said that his organization’s prediction of 7.2 percent reflected improving economies in the U.S. and Europe and that the variations are minimal.
“We feel that the improving situation in Europe and the U.S., as well as global trade will play an important role in sustaining 7.5 percent growth” in 2014, he said. “A certain variance of projections by different researchers, making possibly different assumptions, is to be expected, and the 0.5 percent difference in 2014 is not that unusual.”