Cambodia’s economy will recover from last year’s 3.1 percent contraction this year and strengthen even further in 2022, according to Fitch Solutions.
It forecasts real gross domestic product (GDP) of 2.5 percent in 2021 and 4.7 percent in 2022.
“Our forecast continues to reflect the poorer prospects for services growth amid the country’s protracted struggle to flatten its new Covid-19 infections curve in 2021, as well as a slow recovery in the tourism sector in 2022,” said the affiliate of credit ratings company Fitch.
It said manufacturing and agriculture remain resilient but predicted a slow recovery in the tourism sector.
“ Services (40% of GDP) will remain under heavy pressure as a result of an outbreak of Covid-19 infections that was only brought under relative control since late September, which has likely prevented a rebound in tourist arrivals as well as continued to cause income disruptions,” Fitch Solutions said.
Coronavirus infections have now dropped to a daily average of 54 and 86 percent of the population has been fully vaccinated.
“The types of vaccines used may remain an obstacle to a fuller opening up to international travel,” Fitch Solutions said.
“Cambodia’s vaccination drive has been mostly driven by donated vaccines from Russia and China, with most people receiving Sinovac or Sinopharm vaccines.
These may not earn the recognition of governments around the world, and perhaps more importantly may not be enough to assure international travellers to travel to Cambodia, given the lower reported efficacy rates for especially the Sinovac and Sinopharm vaccines, dampening the impact of Prime Minister Hun Sen’s announcement on November 15 that Cambodia would be fully open to vaccinated travellers from abroad.
This will continue to deal a blow to the Cambodian economy, considering that tourism accounts for about a quarter of GDP in a normal year,” it said.
Without sizeable numbers of foreign tourists Fitch Solutions said domestic spending will be key to economic growth.
Government cash handouts and stimulus measures will help to avert a contraction in the services sector this year and will probably continue in 2022 it said.
Fitch Solutions is pessimistic about the prospects of a recovery in the construction sector, which accounts for 15 percent of GDP.
“The construction sector had already begun to weaken before the pandemic hit Cambodia, especially after Cambodia’s online gambling ban announcement in August 2019 saw widespread construction work stoppages in Sihanoukville.
Cambodia’s construction sector continues to suffer from falling investment appetite after an extended period of overinvestment and excess property supply during the pre-pandemic boom.
Many large developmental projects, such as high-rise commercial and residential buildings continue to be put on hold amid an uncertain pandemic outlook, while new projects initiations are few in number,” it said.
Manufacturing, which contributes 16 percent to the size of the economy, is likely to stay resilient, according to Fitch Solutions.
“We expect manufacturing activity to continue being supported by strong external demand, notably by the US, considering its large fiscal stimulus packages being implemented. This will help to counter the fall in exports going to the EU as a result of a loss of trade privileges and keep exports stable while the industry diversifies away from GFT [garments, footwear and travel products] goods,” it said.
Agriculture, which make up one fifth of GDP, has been resilient during the pandemic and has benefited from increased investment, Fitch Solutions said.
It pointed to the free trade agreement with China and Cambodia’s entry into the Regional Comprehensive Economic Partnership at the start of next year as likely sources of higher demand for the Kingdom’s agricultural products.
This article was first published in Khmer Times. All contents and images are copyright to their respective owners and sources.
