The Asian Development Bank (ADB) has predicted that the real economic growth of Cambodia will reach 2.3 percent this year and will be around 5.7 percent in 2021, according to the newly released report on ADB’s flagship annual economic publication titled, Asian Development Outlook 2020.
The ADB says that after two decades of strong performance, Cambodia’s economic growth is expected to drop to 2.3 percent in 2020, as a direct result of the COVID-19 pandemic that will cause significant global slowdown to major economies such as China, the US and the European Union, resulting in the reduction of Cambodia’s access to vital export markets.
“However, Cambodia’s economy is expected to rebound to 5.7 percent in 2021, assuming that the pandemic ends and economic activity normalises by the end of the year,” said ADB’s Country Director for Cambodia Sunniya Durrani-Jamal.
She added, “Facing unprecedented challenges posed by COVID-19, the Cambodian government has taken the right steps to respond to the crisis, including providing wage support for garment workers and tax and credit relief for businesses. The government has also created the fiscal space to minimise the economic impact of this crisis, especially on the most vulnerable people.”
The ADB says that Cambodia’s services sector is also expected to contract by 1.7 percent in 2020, as tourism drops and growth in real estate slows. Industry growth is forecast to slow to 6.5 percent, with a deceleration in garment production for exports and slower growth in construction.
While inflation is expected to remain low, averaging 2.1 percent in 2020 and will remain subdued in 2021, with international fuel prices remaining low. The report highlights the government’s commitment to diversify the non-banking financial sector and developing local capital markets to provide much-needed financing for growth.
Durrani-Jamal said, “The government’s focus should be on COVID-19 containment or the recovery of the tourism and services sectors will be difficult.”
“The government can draw from a $6.5 billion COVID-19 response package the ADB announced on March 18 to meet its immediate needs to stimulate the economy and provide social protection,” she added.
Mey Kalyan, Senior Adviser of the Supreme National Economic Council, told Khmer Times that COVID-19 will fundamentally change Cambodia and the world.
“After war, we (Cambodia) are integrated into global system, without have much time to think deeply. Now a fundamental and balanced development model is required, defensive and offensive. For us, lots needs be done in the agriculture sector,” Mey added.
Financial Specialist Ngeth Chou, told Khmer Times COVID-19 that if Cambodia can strengthen its small and medium businesses, it would insulate the country because they can produce enough for domestic consumption.
“Now, the first quarter has just ended, we have three quarters to go. With the slowdown of 50 percent of garment exports and 14 percent of the gross domestic product [GDP] ($28billion), Cambodian GDP will continue to drop,” he said.
Ngeth also explained that the construction sector is also going down, and foreign direct investment is also down as Cambodia has mostly investors from China. Now China is in crisis. “If the situation recovers fast, the world recovery will be fast. We need things to improve in the next three months,” Ngeth said. Lately, the World Bank has also predicted the Kingdom’s real economic growth will slow to around 2.5 percent this year mainly because of the COVID-19 pandemic. The country consistently achieved economic growth of around 7 percent for several years.
In its just-released publication titled April 2020 Economic Update for East Asia and the Pacific in the time of COVID-19, the World Bank said the Coronavirus outbreak caused sharp decelerations in most of Cambodia’s main growth drivers in the first quarter of 2020.
“Real growth is projected to slow sharply to 2.5 percent in 2020, but the growth rate will recover to 5.9 percent in 2021 under the baseline scenario,” the bank’s report stated. It added that the unprecedented global shock triggered by the pandemic has significantly affected the country’s economy in all its major sectors: agriculture, tourism, garments, textiles and construction.
“In the worst case scenario, real growth is projected to diminish to 1 percent in 2020 and 3.9 percent in 2021,” according to the report.
“Spillovers to the construction and real estate sector – one of Cambodia’s growth drivers and heavily invested in by Chinese investors – amid financial market turmoil – could potentially be detrimental to growth,” it said.
The report also said rebounds
in economic activity in China and major markets in 2021 will improve Cambodia’s growth outlook next year.