Cambodia keeps GDP growth at 4.5% for 2022: World Bank
PHNOM PENH (The Phnom Penh Post/Asia News Network): Cambodia’s economic growth projection has been maintained at 4.5% by the World Bank (WB) in its baseline scenario despite slowing global demand, thanks the cancellation of travel restrictions caused by a high national vaccination rate against Covid-19.
Conversely, a bearish scenario puts growth at 3.8% due to deteriorating domestic economic conditions caused by rising inflation, while external factors worsen due to weak demand. exterior.
According to the East Asia and Pacific Economic Update, released by the Washington DC-based international bank, the recovery is expected to be driven by the domestic economy and agricultural exports.
That being said, Cambodia’s export-oriented manufacturing industry will likely face headwinds in the coming months, with a less favorable external environment being reshaped by a cyclical slowdown in the US and a structural slowdown in China. .
In addition, rising energy and food prices due to the conflict in Ukraine are expected to slow the pace of poverty reduction as they weigh on household budgets.
In response to questions posed by The Post at a press conference, the World Bank’s Chief Economist for East Asia and the Pacific, Aaditya Mattoo, said the current surge in the world price of oil would have negative effects on Cambodia’s inflation rate.
Cambodia is one of the countries highly dependent on liquefied natural gas (LNG) imports – almost 10% of gross domestic product (GDP) is oil imports.
“So an immediate risk is that the peak of [commodity] prices will continue and hurt economic activities and squeeze consumers. For this reason, it would be a significant challenge for growth prospects and poverty reduction,” Mattoo said.
At the same time, he noted that Cambodia had large external financing needs and that there was a risk in “the other dimension of this crisis”, stemming from high interest rates resulting in a large account deficit. current and funding risk.
“Funding risk, which is also a shock, could be a bigger issue.”
“Inflation is currently below 4%, but there is also a risk of higher inflation which could impact the economic stability that Cambodia has so far managed,” he said.
On a lighter note, Mattoo praised the fact that Cambodia has seen a significant recovery in exports as well as a remarkable vaccination rate.
In early February this year, Economy and Finance Minister Aun Pornmoniroth announced that GDP growth had been set at 5.6% for 2022, reflecting progress towards herd immunity against coronavirus. coronavirus infection.
Cambodia’s immunization rate ranks among the best in the world, prompting the government to allow full restoration of socio-economic activity.
Pornmoniroth also pointed out that for Cambodia and the rest of the world, 2020 and 2021 have been difficult years marked by the pandemic and socio-economic challenges.
Meanwhile, the World Bank said that over the medium term, the economy should “return to potential, with growth of around 6%”.
“The new investment law, the Cambodia-China and Cambodia-Republic of Korea free trade agreements and the regional comprehensive economic partnership are expected to help boost investment and trade in the years to come,” the official said. Bank.
On the positive side, a less persistent global shock could improve Cambodia’s outlook, but the negative effects of the coronavirus on jobs and well-being are likely to continue as the service sector, particularly the travel, tourism and in the hotel industry, is facing persistent headwinds.
“It is crucial to implement structural reforms embedded in the economic recovery plan to improve Cambodia’s external competitiveness.
“Tackling supply-side bottlenecks by reducing business, logistics and energy costs, while eliminating rigidities in key labor market regulations that are preventing a robust market recovery labor remains key to a sustained economic recovery and job creation,” he added.