As the world navigates the aftermath of the pandemic, Southeast Asia is emerging as a region of significant economic growth. However, the robustness and direction of this growth remain largely contingent upon the evolving geopolitical landscape, primarily the strategic rivalry between the United States and China. Amid these broader regional dynamics, the Kingdom of Cambodia presents a unique economic narrative, poised to benefit from regional growth while grappling with intricate international influences.
This comprehensive perspective was outlined by William A. Heidt the former United States Ambassador to Cambodia at EuroCham Cambodia’s Breakfast Talk, entitled “Political and Economic Outlook in Southeast Asia”. The event saw a former top diplomat shed light on the economic and political currents shaping the region’s future.
Thriving from the economic momentum
Highlighting the opportunities for Cambodia, the former diplomat outlined the Kingdom’s potential to continue thriving from the economic momentum of its neighbouring countries, specifically Vietnam and Thailand. Vietnam’s accelerating growth trajectory, particularly in its manufacturing sector, underlines the country’s remarkable economic transformation. With a population nearing 100 million, Vietnam’s increasing economic clout is viewed as an opportunity that Cambodia, with its burgeoning economy, can capitalise upon.
However, a critical caveat remains the geopolitics of trade. The US-China trade conflict, a tug of war ongoing since 2018, has already caused significant disruptions in global supply chains. ASEAN countries, including Cambodia, have felt these ripples given their substantial trade connections with both nations. Thus, the future of Cambodia’s economic performance and its role within ASEAN will likely be influenced by how these two superpowers navigate their economic relationships.
In terms of regional cooperation, ASEAN’s economic future is bolstered by the enforcement of significant new trade agreements. The early 2022 implementation of the Regional Comprehensive Economic Partnership (RCEP) has deepened economic cooperation among 15 countries, home to nearly 2.3 billion people. For Cambodia, the RCEP offers an opportunity to diversify its trade and investment portfolio, thereby enhancing the resilience of its economy.
Moreover, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which counts several developed economies and ASEAN members among its participants, augments trade opportunities within the region. These agreements collectively represent a strategic move for Cambodia to reinforce its economic ties, both within and beyond the region.
Looking at ASEAN’s broader economic performance, the region is forecasted to grow at 4.7% this year, according to international agencies. This rate, although slightly lower than the 5.5% growth of 2022, is largely driven by pent-up consumer demand post-Covid-19, the revival of the tourism sector, a surge in intra-ASEAN trade, and China’s robust economic growth forecast.
China’s economic growth remains key
China’s economic performance, in particular, holds considerable relevance for Cambodia. As the International Monetary Fund predicts China’s economy to expand by 5.2% this year, ASEAN, including Cambodia, stands to benefit from the economic spillover. Rising labour costs in China are leading to supply chain diversification, pushing manufacturers to shift towards lower-cost ASEAN countries. For Cambodia, with its competitive production costs, this development signifies potential investment and job creation opportunities.
Despite these promising prospects, regional uncertainties persist. The situation in Myanmar following last year’s military coup presents a considerable challenge. The diplomat noted the difficulty in being optimistic about Myanmar’s immediate future, indicating that a peaceful democratic resolution seems elusive, potentially affecting regional stability and posing indirect risks to Cambodia.
While the economic horizon for Cambodia appears promising amidst robust ASEAN growth, this outlook is not without challenges. The country’s future remains intricately tied to the successful navigation of US-China trade tensions, the steady growth of its neighbours, regional stability, and the effective implementation of landmark trade agreements.