Cambodia: Kingdom’s economy to grow 5.4% in 2023

The Cambodian economy, which is projected to register a growth of 5 percent this year, is set to grow by 5.5 percent in 2023, according to the 2022 Annual Consultation Report on Cambodia published by the ASEAN+3 Macroeconomic Research Office (AMRO) yesterday.

The report is based on AMRO’s Annual Consultation Visit to Cambodia from July 20 to August 3, 2022, including data and information available up to September 15, 2022.

Pointing out the positive factors, it said the economy is seen to remain resilient, supported by the resumption of tourism and normalization of domestic activity.

This was achieved despite the challenging outlook for the manufacturing sector due to the expected slowdown in the US and EU in the second half of 2022, the report said.

The effects of the war in Ukraine impacted inflation, which peaked at 7.8 percent in June, in the country due to the soaring global energy prices in the first half of 2022.

“Inflation fell to 4.9 percent in August as the fall in oil prices due to a gloomy global outlook helped ease overall price pressures in Cambodia,” the report said.

Sounding on an optimistic note, it said that with global oil prices expected to continue to decline, inflation is forecast to fall from 5.3 percent in 2022 to 3.0 percent in 2023.

While talking about the current account deficit, the agency said: “On the external front, the current account deficit widened to an unprecedented 45.7 percent of GDP in 2021 (or 24.1 percent excluding gold) but is expected to narrow to 35.1 percent of GDP in 2022 (or 21.9 percent of GDP excluding gold), reflecting a recovery in exports and tourism.”

It said FDI inflows into Cambodia are expected to remain stable. International reserves plateaued at $19.5 billion as of June 2022 but remained ample at 9.3 months of imports of goods (excluding gold) and services.

Assessing the risk factors, it said headwinds from weakening global demand amid the monetary tightening of the US Federal Reserve and other central banks could impact Cambodia’s exports of manufacturing products.

“Prolonged strict border controls in China could also adversely affect investments in Cambodia, while dampening prospects for a fuller recovery of its tourism sector,” the report noted.

It said higher oil prices have exerted strong inflationary pressures, increasing the prices of goods and weighing down household consumption.

It indicated that despite the recent easing of inflationary pressures in Cambodia, continued vigilance is needed as there are still significant upside risks to oil prices arising from geopolitical tensions and supply constraints.

“Although inflation has slowed, the overall price level remains elevated compared to a year ago, which could spur calls for higher wages in the future,” the international agency said.

It also lauded the efforts of the Cambodian government that controlled the Covid-19 situation effectively.

“Cambodia has navigated the Covid-19 pandemic well. Apart from the quick roll-out of vaccines, the government support measures have mitigated economic scarring and prevented households from falling into poverty,” it added.

The report pointed out that to handle the fresh challenges, Cambodia will need to continue providing targeted fiscal support amid thinner policy buffers, while unwinding regulatory forbearance and maintaining financial stability. Sus-tained and stronger focus on structural reforms is needed for the Cambodian economy to move up the global value chain, it added.