ADB projects strong economic recovery for Cambodia

Brian Badzmierowski

The Asian Development Bank (ADB) have predicted robust economic growth for Cambodia over the next two years in Cambodia’s chapter for the Asia Development Outlook publication released this week.

The development bank predicts Cambodia’s Gross Domestic Product to grow by 5.3 percent in 2022 and 6.5 percent in 2023 after growing by three percent in 2021.

The upward trend is expected to be buoyed by strong performances from the industrial sector and a turnaround in the services sector.

“Following the economic contraction of 0.8 percent in 2020, developing Asia’s economies bounced back to 6.9 percent in 2021. Driven by strengthening exports, the region’s economies are forecasted to expand at over five percent this year and again in 2023.” Anthony Gill, the acting country director of the ADB Cambodia Resident Mission said. 

“This reflects a robust domestic demand and continued expansion of exports. However, risks to the growth outlooks are tilted to the downside, given uncertainties stemming from the conflict between Russia and Ukraine, the ongoing Covid-19 pandemic, and the impending monetary tightening by the United States Federal Reserve,” he added. 


The Russia-Ukraine war has increased the price of commodities, with Cambodia being particularly affected by rising oil and fertilizer prices. Oil prices per barrel have risen from $96 to $138 since the start of the Russia-Ukraine war on February 20. 

“There’s a lot of uncertainty regarding the war and the global commodity prices and the impact on economic growth and inflation for the region. What is certain is that the fallout from this war is an additional hurdle for economies in developing Asia which are still battling the pandemic,” Sophia Nguyen, ADB Cambodia’s country economist, said.

Assuming the Russia-Ukraine war stabilizes this year, ADP projects oil prices to return to around $100 per barrel, helping to keep inflation down.

Inflation has remained stable in the region, but potential interest rate hikes by the US Federal Reserve may cause inflation spikes as well as increased market volatility.

Manufacturing is key to sustained growth

Manufacturing was the main driver of a GDP bounce-back in 2021 in Cambodia. In 2020, the industrial sector contracted by 1.4 percent and in 2021, it grew by 7.4 percent.

This growth has been supported by the emergence of non-garment, footwear, and travel (GTF) exports, including electronic components, electrical wiring and cables, vehicle accessories, and processed wood products.

The garment sector has rebounded as well.

“The growth of the garment, footwear, and travel (GTF) goods sector is led by strong external demand for Cambodian products and a relocation of orders from China and neighboring countries, in particular Myanmar, and buoyed by the implementation of the recently adopted Garment, Footwear, and Travel Development Strategy,” Poullang Dong, ADB Cambodia’s senior economist said.

“Growth of other manufacturing products will reflect expected strong external demand and also will be supported by the recent FTAs with China and Korea, as well as the new investment law.”

To read more about Cambodia’s developing garment sector click here.

ADB predicts the services sector grow by 4.8 percent in 2022 after contracting by .4 percent in 2021. In 2023, ADP predicts 6.8 percent growth in the sector.

Dong said the service sector will rely on the continued growth of wholesale and retail trade, communications services, and a gradual recovery in real state. Any rebound in tourism would help support accommodation, food, and transportation services.

In 2023, growth in the sector will be supported by stronger hospitality industry, Cambodia’s hosting of the 2023 Southeast Asia Games, and the national election. These events will spur domestic trade and services such as transportation,” Dong said.

Agriculture, meanwhile, is predicted to maintain a growth rate of 1.2 percent between 2022 and 2023.

Continuing to diversify the economy should be the main priority to ensure sustained economic growth, with manufacturing taking the lead, Dong said.

Attracting FDI in an unsure market

Increasing foreign direct investment (FDI) remains a top priority for the country, and the new Law on Investment is expected to help spur investment.

New Free Trade Agreements (FTAs) like RCEP and the FTA with China and Korea will help with FDI and job creation, but it will also create more overseas competition, Gill said. FDI from China is expected to remain muted as it deals with a new wave of Covid cases.

The reduction of FDI from China and the decreased market confidence due to the Russia-Ukraine war is expected to hold back the real estate and construction sector, Nguyen said.

To read more about Cambodia’s economic predications in 2022 click here.

Government spending will increase to continue supporting economic recovery from the pandemic with programs such as the ID Poor Program and loan restructuring programs. The fiscal deficit is projected to increase from -4 percent to -5.6 percent in 2022.

Cambodia’s account deficit ballooned to -45.7 percent of the GDP in 2021 due to trade imbalances, but this trend is expected to reverse in 2022, with trade re-balancing helping to bring the deficit down to -21.5 percent of the GDP. In 2023, the deficit is projected to fall to -16.1 percent.

ADB’s report did not include poverty forecasts, which are usually the purview of the government, but Gill said the organization is involved with several activities analyzing the impacts of the pandemic on poor households. One of these initiatives is a survey mechanism that helps identify specific issues for poor households which are then relayed to the government.

Nguyen said the country’s sustainable growth will heavily depend on upskilling workers and assisting those who were left unemployed because of the pandemic.

“It’s really important to develop the skills of the workers, especially as the economy tries to diversify into higher-value chains,” she said.

She added that continuing to lean on tech for future growth would be important, as well as renewed interest in sustainable projects.

“We know that Cambodia is a small open economy with a small population. It’s really important that Cambodia leverage the technology to support innovation and growth,” she said.

“Finally, coming out of the pandemic, let’s not forget that it’s really important for the economy to go back to a sustainable economic path by developing green projects, especially infrastructure projects.

To read ADB’s full ADO report click here.

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