Cambodian Economic Growth Nudges Ahead Of Predictions

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Asian Development Bank country director Samiuela Tukuafu (right) and ADB senior country economist Jan Hansen discuss the Cambodian economy during yesterday’s launch of their annual economic report, the Asian Development Outlook. KHMER TIMES / MAI VIREAK

Cambodia’s gross domestic product is expected to increase by 7.1 percent in 2017 and 2018, slightly higher than the estimate of 7.0 percent last year, according to the Asian Development Bank’s flagship annual economic publication, Asian Development Outlook 2017, which was released yesterday.

The report states that the economy is expected to remain strong over the next two years, driven by solid garment and footwear exports, construction and real estate activities, rising government expenditure and a moderate recovery in agricultural production.

ADB country director Samiuela Tukuafu said inflation is predicted to edge up and the current account deficit to narrow. Reviving agriculture is critical to sustaining rapid growth and poverty reduction. He said that growth in industry is projected at 10.8 percent this year, supported by higher growth in major industrial countries and some diversification into products with high value-added such as garments, footwear, light manufacturing and electronics.

Tukuafu noted that the service sector is expected to expand by 6.7 percent, driven by buoyant domestic demand and tourism while agriculture is projected to grow by 1.8 percent, assuming favourable weather. The growth in construction is expected to moderate.

“While the short-term economic growth outlook for the Cambodian economy remains strong, labor costs and skills shortages are increasing,” he said. “Speeding up implementation of the Industrial Development Policy 2015-2025 will lower the cost of doing business and improve productivity growth and competitiveness through regulatory reform, and investments in infrastructure, logistics and a broader range of skills.”

ADB’s report said that with growth firming up in the major industrial economies this year, Cambodia’s export prospects are robust. Agriculture is seen maintaining a similar pace of growth as last year, and government spending will likely increase. The report added that industry is projected to grow by a slightly higher rate of 10.8 percent this year, with growth in garment and footwear production picking up.

Services are expected to expand by 6.7 percent, as in 2016. The key challenge for the tourism industry is to stay competitive as newer Southeast Asian attractions emerge, notably in Myanmar.

The report said the potential for light manufacturing to relocate out of China into lower-cost economies in the region should offer Cambodia scope to attract FDI for a variety of pursuits beyond garments and footwear and as Cambodia is a highly dollarised economy, it must be careful to align minimum wage adjustments with productivity increases to keep wage costs in check and stay competitive as a manufacturer for export.

ADB’s senior country economist, Jan Hansen, said at the ADB’s Asian Development Outlook Launch yesterday that Cambodia’s exports are expected to expand by 11.0 percent this year, outpacing import growth at 9.0 percent while tourism revenues should remain strong this year and next year.

“The economic outlook is subject to downside risks, both domestic and external while domestic risks stem from vulnerabilities in the financial sector partly traceable to its rapid expansion, in particular the proliferation of microfinance institutions.” he said. “On the external front, the risks are weaker growth in the euro area, a sharper-than-expected global tightening of credit, and a surge in the US dollar, which could constrain exports and competition from other low-cost producers.”

This article was originally published in the Khmer Times.