Cambodia’s economy is expected to grow at around five percent this year as against three percent last year, but the inflationary pressures being witnessed across the world can cut into the purchasing power of the country’s households as well, said the Financial Stability Report 2021, released by the National Bank of Cambodia (NBC) recently.
The growth of the Gross Domestic Product (GDP) in 2022 will be mainly supported by exports of agricultural products, transport, telecommunications and improved investment flows and remittances from overseas workers,
In terms of trade and investment, the Kingdom is expected to benefit from the Regional Comprehensive Economic Partnership (RCEP) agreement, bilateral free trade agreements and the introduction of new investment law, it said.
The report also stressed the uncertain conditions created by the Covid-19 pandemic, the Russia-Ukraine war, and interest rate hikes in developed countries as threats to the country’s economy.
Though Cambodia has only limited macroeconomic linkages to the Russia-Ukraine region, the prolonging and escalating war can cause severe damage to the world economy, especially the European Union which is one of Cambodia’s main export destinations.
“The crisis has weighed on the global and regional economic recovery through the rise in international commodity prices, putting upward pressure on the currently high inflation in many countries. As Cambodia imports several food items and oil from abroad, inflation may be much higher than
the previous year which would put pressure on households’ purchasing power,” the report said.
Secondly, China’s economic slowdown due to its strict Covid-19 strategy has led to more frequent lockdowns and retrenchment of China’s real estate sector which may affect the economic recovery of Cambodia that heavily depends on Chinese investments and imported materials for the Kingdom’s export-oriented industries.
Third, the tightening of the global financial conditions as a result of persistent and soaring inflation since the second half of 2021 may affect the flow of capital into the emerging and developing countries, decelerating the economic momentum in the region as well as in Cambodia.
Fourth, though the infection rate from the Omicron variant of the Covid-19 virus was low in Cambodia, the threat of the emergence of new variants still remains. The continued spread of Omicron in the region has also spillover effects on the Cambodian economy through a decline in remittances, tourism, investments and export channels.
Fifth, climate change poses a significant risk to the country’s agricultural production, which is vulnerable to extreme weather events.
The report showed that the country’s manufacturing sector bounced back in 2021 following improved external demand. Exports of garments (65.1 percent of the total exports) rose by 15.4 percent, while exports of non-garment items (excluding gold) climbed 42 percent, particularly bicycles, electrical parts and agricultural products.
The construction sector which was hit hard by the pandemic too recovered marginally in 2021, recording a growth rate of 1.1 percent. Agriculture recorded a growth rate of 1.1 percent, mainly due to the government’s supporting measures, favourable weather conditions and increased labour availability. The cultivated area and rice yield during the wet season went up four percent and 10.2 percent respectively.
For the tourism sector, 2021 remained a bad one with a decline of 85 per cent in the arrival of international visitors (to 196,495 visitors), putting the tourism industry and the relator sectors under severe pressure. However, signs of recovery were visible in the tourism sector after the travel restrictions were lifted by November 2021.
This article was first published in Khmer Times. All contents and images are copyright to their respective owners and sources.
