Cambodia’s economy is expected to remain strong over the next 2 years, driven by solid garment and footwear exports, construction and real estate activities, rising government expenditure, and a moderate recovery in agricultural production, says a new Asian Development Bank (ADB) report released today.
ADB’s flagship annual economic publication, Asian Development Outlook 2017 (ADO), says Cambodia’s gross domestic product (GDP) is expected to increase to 7.1% in 2017 and 2018 — slightly higher than an estimated 7.0% in 2016.
“While the short-term economic growth outlook for the Cambodian economy remains strong, labor costs and skills shortages are increasing,” said Samiuela Tukuafu, ADB Country Director for Cambodia. “Speeding up implementation of the Industrial Development Policy 2015-2025 will lower the cost of doing business and improve productivity growth and competitiveness through regulatory reform, and investments in infrastructure, logistics, and a broader range of skills”.
Growth in industry is projected at a slightly higher rate of 10.8% this year, supported by higher growth in major industrial countries and some diversification into products with higher value added such as garments, footwear, light manufacturing, and electronics. The service sector is expected to expand by 6.7%, driven by buoyant domestic demand and tourism. Agriculture is projected to grow by 1.8%, assuming favorable weather. Growth in construction is expected to moderate.
The fiscal deficit, excluding grants, is estimated to increase to 4.3% of GDP this year due to higher public expenditure. Higher international prices for oil and other commodities are expected to step up inflation to 3.4% this year, from 3.0% in 2016. The current account deficit, excluding official transfers, is estimated to further narrow to 9.4% of GDP in 2017 from 10.1% of the GDP last year in line with strong exports and low oil prices.
The economic outlook is subject to downside risks, stemming from vulnerabilities in the financial sector partly traceable to its rapid expansion, including rapid growth of microfinance institutions, and possible spillovers from an uncertain external environment. The ratio of private sector credit to GDP more than doubled over the past 5 years to close to 70% in 2016, and the authorities have introduced measures to help slow down credit growth. Main external risks include disappointing growth in the euro area and a stronger US dollar, which could undermine competiveness of Cambodian exporters and stiffen competition from other low-cost producers.