Cambodia Investment Review

World Bank Marginally Revises Down Cambodia’s 2023 GDP Forecast to 5.4%, Cites Major Potential Downside Risks

World Bank Marginally Revises Down Cambodia’s 2023 GDP Forecast to 5.4%, Cites Major Potential Downside Risks

Cambodia Investment Review

In its latest economic update, the World Bank has marginally revised down Cambodia’s growth projection for 2023 to 5.4%, from the 5.5% forecast in May. Despite this slight downturn, the forecast for 2024 and 2025 remains optimistic, with anticipated growth rates of 5.8% and 6.1% respectively. This optimism is rooted in expected increases in infrastructure investment and the benefits arising from regional trade agreements.

Read more: Cambodia’s 2023 Economic Growth Revised Down to 5.3% Amid Industry Slowdown, ADB Reports

The World Bank’s semi-annual outlook, titled “Cambodia Economic Update: Accelerating Structural Reforms,” indicates that the Cambodian economy, while showing resilience, faces a mix of external and domestic challenges. These include structural shortcomings and external pressures, which have constrained growth despite an initial rebound in tourism and other service sectors. The economy saw a growth of 5.2% in 2022.

Crucial Role Of The Private Sector In Sustaining Economic Growth

Maryam Salim, the World Bank Country Manager for Cambodia, emphasized the crucial role of the private sector in sustaining economic growth. “To sustain economic growth, Cambodia needs to support the private sector as the engine of growth, and this can be achieved by prompt actions to improve public sector performance,” Salim said. She also highlighted the importance of maintaining financial stability and the need for more efforts to restore fiscal space.

The report identifies key areas of concern that could impede growth. These include Cambodia’s limited transport and logistics capabilities and an unreliable energy supply, which impose significant costs on businesses and consumers. Short-term growth is also being hampered by overlapping negative shocks stemming from the pandemic, Russia’s invasion of Ukraine, and high international interest rates.

Vongsey Vissoth Minister in charge of the Office of the Council of Ministers of Cambodia.

Tourism, a vital sector for Cambodia’s economy, is experiencing a gradual return of international tourists. However, revenues at major tourist destinations remain significantly lower than pre-pandemic levels. The manufacturing sector, particularly garments, has weakened due to reduced global demand. This downturn has led to a 5% drop in manufacturing jobs, prompting the government to provide financial support to laid-off workers.

Cambodia’s Economic Growth Could Be Adversely Affected

Looking forward, the World Bank cautions that Cambodia’s economic growth could be adversely affected by weakening global demand or renewed oil and food price shocks. Domestically, the rising household debt and domestic credit in the real estate sector are also flagged as potential risks.

Read more: Mekong Strategic Capital Expects More Challenging Outcome for Cambodia’s Economy in 2023, Before Rebounding in 2024

The report also includes a special focus on structural reforms that could enhance sustainable and productivity-led growth in Cambodia. Key recommendations include improving the business environment to enhance productivity and competitiveness, upgrading infrastructure and connectivity, and enhancing workforce skills.

While Cambodia’s economic outlook remains positive in the medium to long term, it faces significant challenges in the near term. The World Bank’s revised forecast and its emphasis on structural reforms and private sector support highlight the need for strategic planning and action to navigate these challenges effectively.

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