The International Monetary Fund (IMF) has adjusted its growth projection for Cambodia’s GDP in 2023 to 5.6 per cent, down from its previous forecast of 5.8 per cent in April.
The reduced growth forecast can be attributed to weak external demand, particularly from US and European markets, explained Shanaka Peiris, the Division Chief of Regional Studies at the IMF Asia and Pacific Department, during a press briefing on October 18, 2023.
Peiris added that Cambodia’s exposure to China has also been significant, hence, reduced tourism from China in 2023 has played a role in the Kingdom’s “slightly weaker growth”.
“But it’s still very solid growth,” he stressed.
RCEP Offers Opportunity For Diversification
Peiris further noted that the IMF’s economic growth forecast for Cambodia in 2024 is 6.1 per cent, as the institution foresees the Regional Comprehensive Economic Partnership (RCEP) providing valuable opportunities for diversification.
“We’ve seen integration in Cambodia with ASEAN trading partners increase rather than decreasing some of the exposure to US, Europe, which is very high,” he said.
However, the impacts and commitments of RCEP will only be felt over time, as such agreements often take gradual effect. The major benefits of RCEP will only be realised in the long-term, including how successfully it allows for the creation of a business environment that attracts investment across various sectors. Peiris explained that he believes Cambodia is currently well positioned, in this regard.
Slow-Down In Tourism From China
Peiris stated that Cambodia’s tourism recovery has been quite solid, but there has been a notably slower return of Chinese tourists to pre-pandemic levels. On the positive side, there has also been an increase in tourists from other ASEAN member countries, providing a path for further diversification.
“If Chinese tourism catches up further and returns to Cambodia, it would present an upside risk,” he added.
He also noted that increased Chinese participation would help sustain the Kingdom’s real estate sector, however, global interest rates are also expected to rise, which would lead to higher borrowing costs in Asia.
Economic Risks Faced By Cambodia In 2023
In September 2023, the Asian Development Bank (ADB) also revised its forecast for Cambodia’s economic growth in 2023 down to 5.3 per cent. The report cited several potential risks for the country’s economy, including sluggish growth in advanced economies, decreased tourist arrivals and foreign direct investment (FDI), tightening global financial conditions, rising energy prices, concerns about high private debt and domestic financial stability, and climate change-induced extreme weather events.
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