The ASEAN+3 Macroeconomic Research Office (AMRO) released its annual Regional Economic Outlook 2022 and predicted ASEAN GDPs to grow by 5.1 percent this year and 5.2 percent in 2023.
Cambodia’s economic growth is ahead of the curve, with GDP expected to grow by 6.1 percent in 2023, just behind regional neighbors Philippines and Vietnam, at 6.5 percent and 7 percent respectively.
To read more about Cambodia’s economic outlook click here.
“Now, as we move through 2022, it appears as though the region may finally have gained some ground in its long battle against the virus and we can now look forward to a fuller opening-up and a strong economic recovery,” AMRO Chief Economist, Hoe Ee Khor said.
The apparent winding down of the virus was viewed by AMRO as a positive for the region while a prolonged Russia-Ukraine war could have dramatic negative effects on the region.
“ASEAN+3 policymakers will have to be nimble as they navigate this complex environment, strengthen economic recovery, and rebuild policy space,” Khor added. “This will not be our last crisis. We must rebuild, and continuously innovate and learn as we prepare for the next crisis.”
During a webinar discussing the report, Khor said the longer the pandemic lasts, the more economic scarring will occur. Concerning labor supply, aging economies are expected to be hit hardest, due to lower fertility rates, lower labor force participation rates, and a lower amount of foreign workers. These factors won’t affect Cambodia as much, where the average age is 25.6.
Cambodia will, however, feel the effects of education disruptions due to school closures. “COVID-19 has caused unprecedented disruption to education due to school closures,” Khor said.
Citing Asian Development Bank statistics, Khor said the region lost 23 percent of its teaching days, which exceeds the global average. Cambodia lost the fourth-largest amount of school days in the ASEAN+3 region and is expected to suffer from “eroded future human capital and labor productivity” as a result.
Finding fiscal space in Cambodia’s budget
“For ASEAN economies, the biggest concern is that the pandemic support and stimulus packages have consumed a lot of fiscal resources and reduced the fiscal space. This means that going forward, it will be harder for governments to provide sufficient resources for public investment, especially in infrastructure.” Khor said.
Countries with the largest infrastructure gaps are expected to suffer from a lack of investment most, and according to the World Economic Forum, Cambodia has the third-largest infrastructure gap in the region, trailing only Myanmar and Laos.
However, it’s not all dreary news for Cambodia on the infrastructure front, as Sihanoukville’s deep seaport, highways throughout the country, and several airports continue on schedule.
Khor said tourism recovery in the region will hinge on the return of Chinese tourists. While recent COVID outbreaks are restricting border controls, Chinese tourists are itching to travel.
“Fortunately, surveys suggest Chinese tourists are keen to travel again within several months, once China can relax its travel restrictions,” he said.
Cambodia could benefit from the growth of e-commerce and digital services as well as a nearshoring trend that will strengthen the ASEAN region’s supply chain, particularly through RCEP.
“Through RCEP, multinational enterprises will be able to use the competitive advantage of different production bases in ASEAN+3 to meet demand in the region and beyond,” Khor said.
To read more about Cambodia’s trade opportunities under RCEP click here.
Benefits included tariff reductions, consolidated rulebooks, accommodative rules of origin, services trade liberalization, labor mobility, and the growth of e-commerce and digital trade.
The AMRO report also suggested that ASEAN+3 has become an attractive and large consumer market, and should be a magnet for foreign direct investment.
Scars compounded by geopolitics
Alicia Garcia Herrero the chief economist for Asia Pacific at Natixis, said countries not well-positioned to capitalize on manufacturing trends should focus on digital services, but it appears Cambodia may be able to do both.
Herrero, said the aforementioned economic scars in the region will be compounded by recent events as well.
“Those scars are now being hit by additional shocks: war and climate change,” she said. “The lower your income, the harder hit you are in terms of that scarring.”
“Not everybody will be able to compete in this nearshoring or reshoring trend… Countries that are too small to compete in the search for nearshoring need to think services.”
She advocated for the need for broadband and telecom infrastructure to promote and enable digital services. She also said prioritizing tackling climate change was a must for the region.
“The fiscal space needs to be there for green energy and climate change mitigation because there will be no nearshoring possible without that,” she said.
She added that European countries will soon impose taxes on carbon-heavy imports. “If your production of energy is carbon-intensive, there will be taxes imposed on your exports. So this is a priority to change that into green energy.”
Muhamad Chatib Basri, the former minister of finance in Indonesia said the future fiscal policies of governments in Asia will move towards inclusive growth to help maintain human capital and combat the closure of schools. Programs may also be included to support women, as many women work in informal sectors and have been disproportionately by the pandemic.
He said the problem was finding the fiscal space to support these initiatives. One option, he added, was moving away from fossil subsidies, a win-win policy that could also open up funds for more investment in public health.