ADB predicts GDP growth 4.5 per cent for Cambodian economy in 2010

ADB predicts GDP growth 4.5 per cent for Cambodian economy in 2010


The Asia Development Bank announced on April 13 that Gross Domestic Growth (GDP) of Cambodian economic growth will project for 4.5 per cent in 2010 after the world economy recovered from the financial crisis. The statement continued that the economic prospects in 2011 will project about 6 per cent for the GDP growth.
“If global economic growth is in line with the Asian Development Outlook
2010 assumptions and if the weather allows for reasonable crops in Cambodia, GDP is projected to rebound by 4.5% in 2010,”the statement said, adding that the assumed lift in US consumer spending will likely result in only a mild recovery in demand for Cambodian garments, however, owing to the industry’s loss of competitiveness to other suppliers.
It highlighted that the pace of decline in garment exports to the US did ease, though, heading into 2010 and Growth in services is projected to resume at around 5% in 2010. Forward bookings suggest fairly weak growth in arrivals of higher spending tourists, although arrivals of less free-spending tourists are expected to continue to increase.

It said that other services are projected to recover moderately, reflecting a gradual pickup in domestic consumer and business sentiment. And at the same time, Construction activity will likely grow at a moderate rate of about 4%, as appetite for bank credit gradually recovers and inflows of foreign direct investment, particularly from Korea, resume for some projects. And moreover, Agricultural output is projected to expand by 4.7%, assisted by efforts to increase irrigation and the greater availability of high-yield seeds.
It continued that fiscal policy is expected to be less stimulatory this year than last. The 2010 budget aims to narrow the deficit to 5.2% of GDP, to be achieved by raising tax revenue to 9.7% of GDP (from 9.0% in 2009) and rolling back the public sector wage bill a bit. Assuming a similar proportion of external financing as in 2009, this would enable a reduction in the drawdown of government deposits at banks to 0.6% of GDP. “The Revenue will get a lift from the strengthening of economic activity and new taxes on luxury vehicles and property,” it said.
In Southeast Asia, aggregate growth is likely to rebound to 5.1% in 2010, from just 1.2% in 2009, when five of ten economies contracted (Brunei Darussalam, Cambodia, Malaysia, Singapore, and Thailand). The bounce back is due in large part to the revival of global trade and rising investment. The pace of growth is likely to quicken a bit in 2011. “Developing Asia's recovery has taken firm hold and a return to stronger and sustainable growth is now in sight if the region can meet the challenge of strengthening domestic demand,” ADB Chief Economist Jong-Wha Lee quoted his statement as saying.
According to the ADB, Cambodian Economic performance noted that after growth that averaged 9.1% from 1998 to 2008, the economy contracted by an estimated 2.0% in 2009. The shrinkage reflected output declines in three of the four drivers of growth: garment exports, tourism receipts, and construction, which together account for over one-third of GDP. In contrast, the primary sector, the economy’s fourth driver producing about 30% of GDP, maintained trend growth and served as a social safety net for many laid-off workers. Agricultural output expanded by an estimated 4%, mainly a result of favorable rains. Fisheries production received a boost from aquaculture and marine fishing to expand by about 9%, while growth in livestock and forestry-related production is estimated to have remained at around trend rates.

Growth in services slowed to about 1.5%, principally a reflection of a decline in tourism receipts as global travel waned, and of border tensions with Thailand, a country through which many tourists transit. Total tourist arrivals rose by 1.7% in 2009 (to 2.2 million), pushed up by increases of about half from neighbors the Lao People’s Democratic Republic and Viet Nam.
However, the number of higher-spending tourists from the Republic of Korea (hereafter Korea) and Japan fell by 26% and 11%, respectively. Industrial output last year fell by an estimated 13.0%. Data from the United States (US) Department of Commerce showed that US garment imports from Cambodia plummeted by 20.9% in dollar terms in 2009 because of lower overall US demand and a loss of market share to competitors such as Bangladesh. (The US accounts for 70% of Cambodia’s garment exports.) Construction is estimated to have contracted by 10%, reflecting a sharp decline in inflows of construction related foreign direct investment (especially for large projects, including those funded from Korea), and a slowdown in residential construction. Heading into 2009, inflation decelerated from very high levels, such as 35.6% in May 2008 as world oil and food prices fell and domestic monetary policy was tightened in mid-2008. Weakening domestic demand in 2009 further subdued price pressures, so that the consumer price index on average in 2009 was 0.7% below prior-year levels. By December, though, year-on-year inflation had returned at a rate of 5.3%. The real effective exchange rate of the riel appreciated by about 2% during 2009.

It stressed that foreign direct investment inflows fell by an estimated 27 % to 593 million, reflecting the financial crisis and global recession, but donor inflows remained buoyant, and international reserves increased to around $2.4 billion, equivalent to more than 4 months of projected imports.
An analysis conducted by multilateral organizations in late 2009 concluded that Cambodia’s external public debt remains sustainable and that the risk of debt distress is moderate. Such debt at year-end was estimated at $3.2 billion (up slightly from end -2008, mostly on concession terms. Most external private debt is in the form of trade credits.
Last week, World Bank also announced that that Cambodian growth is projected at 4.4 percent for this year and expected higher at 6 percent for next year thanks to the regional economic recoveries.
“The growth for 2011 would be 6 percent base on the facts that we see some recovery sign since the last quarter of last year,” said Huot Chea, Economist, World Bank Cambodia told reporters at that time.
“Actually we see the consumer goods starts growing, the arrivals of the international tourists stop declining and also the credit provides to the private sector starts growing,” he said.

According to a joint statement—which joined by the World Bank, Cambodia and IMF—released at the news conference said Cambodian foreign direct investment (FDI) is estimated at $USD 515 million for 2009, and it is projected to increase at $USD 725 million for 2010.
The release also said the value of FDI is expected to reach up to $USD 800 million for 2011.
Cambodia received 2.1 million foreign tourists last year which is 1.7 percent increased from 2008.
Cambodia tourism sector, which is one of the country’s key economic factors, continued to play a vital role in contributing to the country’s growth given the tourist arrival is expected to increase 15 percent a year.
Cambodia has been successful with rice production in the last decade and this prospect remains unchanged. The kingdom produced an estimated 7.3 million tonnes of rice for 2009-2010 of which the country saw another surplus of rice of 3.1 million tonnes available for export, according to the agriculture ministry. ###