The country’s economic growth projection for 2017 was revised down to 6.8 percent, a slight decrease from a previous forecast of 6.9 percent, due to a moderation of growth in textile exports and a slowdown in the construction sector, according to the latest report from the World Bank.
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The deceleration in textile exports follows a decrease in Cambodia’s regional competitiveness due to higher wages in the garment sector, the high cost of transportation and energy as well as the emergence of competitors with cheaper labour forces like Myanmar.
Partly offsetting the downtrend, exports of machinery and auto-parts picked up, indicating that Cambodia may be at the cusp of climbing up regional value chains.
“Cambodia appears to be on the verge of climbing up the manufacturing value chains – from garments to electronics and auto parts – and that is a very encouraging development,” said Inguna Dobraja, WB’s country manager for Cambodia.
“To succeed in boosting investment and export diversification, Cambodia would need to undertake deeper structural reforms that address high electricity and logistics costs, as well as the skills gap.”
Ly Sodeth, a senior economist at WB, said Cambodia has already achieved some measure of export diversification, but warned that the high cost of electricity is still an impediment to greater economic growth.
The tourism sector continues to grow at an impressive rate due to government efforts to attract international tourists, particularly from China. Government initiatives like the China Ready policy have helped increased the number of direct flights between Cambodia and China, boosting the number of visitors to the country.
Developing ecotourism and protected areas with high-value products and services is an important step to safeguard that growth, said Wouter Schalken, WB’s private sector specialist, adding that infrastructure and connectivity to tourism areas should be improved.
According to the report, inflation remained moderate, reflecting softer domestic demand as the construction boom shows signs of slowing and credit growth eases.
However, a possible slowdown of the regional economy, especially China, and potential election-related uncertainties, are putting downward pressure on the outlook.
In 2018, growth is expected to pick up marginally, reaching 6.9 percent, largely due to rising election-related spending.
Export diversification, underpinned by healthy inflows of FDI, government’s public investment, and recovery in global trade are expected to drive growth in 2019 and beyond. Eventually, however, economic growth will likely slow down due to the absence of deeper structural reforms.