Cambodia’s economy expected to trend back to potential six percent growth

The World Bank in its Economic Update released Wednesday said the tourism and hospitality industries are likely to accelerate further, with projected increases in international arrivals and domestic tourists once the pandemic is becomes history.

Agricultural production and agroprocessing industries continue to be boosted by newly ratified free trade agreements. In addition to the Cambodia-China Free Trade Agreement (CCFTA) and the Regional Comprehensive Economic Partnership (RCEP), which have been in effect since January 2022, the Cambodia-Republic of Korea Free Trade Agreement (CKFTA) which into effect in December 2022.

The travel, transport, and logistics industry should be boosted by strong investment in several key infrastructure projects, such as a newly built expressway linking Phnom Penh to Sihanoukville, where a deep-sea port is located; a new logistics complex and multimodal port development project in Kampot; and a new expressway project linking Phnom Penh to Bavet, on the Cambodia-Vietnam border.

Global financial tightening has started to negatively impact the economy

Cambodia has been experiencing a deceleration of foreign currency deposit growth, reflecting the easing of capital inflows.

There have been depreciation pressures on the riel/U.S. dollar exchange rate, which required interventions in the foreign exchange market and led to the decline in Cambodia’s gross international reserves.

As pressures on domestic interest rates emerged, the country’s commercial real estate sector faced increased risks.

If elevated energy prices linger, a further deterioration of the terms of trade will undermine consumer confidence and corporate profitability, and potentially prevent the economy from reaching potential growth by 2024.

Further, intensifying geopolitical tensions, including a prolonged war in Ukraine, growing stagflationary headwinds, rising financial instability, continuing supply-side constraints, and worsening food insecurity all present serious risks to Cambodia’s projected path to economic recovery.

Even though Cambodia maintains policy space that it could deploy should these risks materialize, its fiscal buffers have shrunk, after years of government fiscal intervention.