Optimistic growth forecast by ministry: 6.6%
Optimistic growth forecast by ministry: 6.6%
Senior officials from the Ministry of Economy and Finance predict that Cambodia’s economy will grow by approximately 6.6% in 2024, despite external challenges like geopolitical tensions and a global economic slowdown, including in its key trading partners.
The projection is bolstered by improvements in the non-garment sector and tourism, coupled with a significant early-year rebound in the garment sector.
High GDP growth in 2024
Ministry secretary of state Phan Phalla spoke at a public forum on macroeconomic management and the 2024 Budget Law (BL) in February last year.
He projected that the country’s gross domestic product (GDP) would reach approximately 142.96 trillion riel (about $35.17 billion) this year, with GDP per capita expected to hit $2,071, compared to $1,917 in 2023.
He noted that many economies of the country’s trading partners have shown improvement, and some domestic sectors have also seen growth.
Phalla said the non-garment sector continues to increase, tourism is expected to rise and the garment sector has recovered considerably.
In January, he noted, the garment sector’s exports exceeded those of the same period in 2023.
“Regarding buyers, orders and the factory industry in 2024, there is a lot of optimism indicating a positive recovery. Additionally, the production in non-garment sectors and agriculture is performing well,” he said.
Phalla highlighted other positive factors that complement the aforementioned activities, including a steady rise in foreign direct investment (FDI) from 2021-23 and a significant increase in Chinese investments due to strong Cambodia-China relations.
External factors remain an issue
In late January, the International Monetary Fund (IMF) projected the country’s economic growth at 6.1% for 2024, attributing the figure to the recovery of regional and global economies.
Krishna Srinivasan, director of the IMF’s Asia Pacific Department (APD), stated that the global economy is expected to grow by 3.1% in 2024, consistent with the growth rate in 2023. He added that a slight increase to 3.2% is forecasted for 2025, with global inflation projected to decrease from 6.8% in 2023 to 5.8% in 2024 and 4.4% in 2025.
For Asia, Srinivasan said the institution had revised growth upward for 2024, with the regional forecast increased to 4.5% from 4.2% in October 2023.
“The external environment is more supportive, with strong growth in the US bolstering domestic resilience. Recently, there has been an uptick in demand for technology, computers, electronics and optical products. Overall, Asia is poised to contribute two-thirds of global growth in 2024,” he explained.
He added that in post-pandemic Asia, price increases were generally less intense than in other parts of the world. With particularly rapid progress in emerging Asian economies, he said many regional central banks are poised to reach their inflation targets this year.
Srinivasan also noted that stronger-than-expected policy support in China could boost demand and generate positive spillovers. However, he cautioned that financial conditions remain volatile and tighter than expected conditions in the US or Asia could pressure heavily indebted industries and economies.
“Rising risks of geopolitical fragmentation are particularly burdensome for Asia, given the region’s deep integration into global trade. We already see evidence of negative effects in the form of longer and less efficient supply chains. The threat of higher shipping costs reinforces risks for trade,” he added.
“Now, what should policymakers prioritise? In our view, this is a time to strengthen the resilience of Asia’s economies. Fiscal consolidation is key to restoring buffers and safeguarding debt sustainability,” Srinivasan advised.
Increased vigilance in 2024
NBC governor Chea Serey stated in late January that the country’s 2024 outlook remains uncertain due to global challenges, including geopolitical tension and the risk of geopolitical division.
She noted that expectations of monetary policy stabilisation in major developed countries, after inflation falls to target levels, could impact the transfer of financial assets.
“Capital flows may fluctuate with the pace of … normalisation and may lead to uncertainty over investment flows and exchange rate pressures. In this situation, the Cambodian economy may continue to face high external risks,” she said.
According to Serey, internal risks can also pose challenges, including the weak recovery of the construction sector and declining demand in real estate. She noted the decline was primarily due to the real estate crisis and slowing economic growth in China, a major investor in Cambodia.
She said that low inflows of foreign investment into the sector are expected to lead to a reduction in revenue sources, affecting domestic demand for real estate as well.
“Despite these challenges, the Cambodian economy is optimally projected to grow at around 6.4% in 2024. The growth is largely driven by the continued growth of the services sector, especially tourism, and the recovery of the manufacturing sector, while industries such as agriculture, construction and real estate continue to see low growth,” she added.
Phalla highlighted the need for increased vigilance in 2024 in the context of rising challenges and risks, both domestic and international.
He said these threaten the sustainability of the country’s development and include rising geopolitical, regional and global tensions, a global economic slowdown, longer-than-expected tightening of monetary policy, particularly in the US, and the continued strengthening of the dollar.
He said these factors could affect the flow of capital investment and trade, as well as push the continued rise in energy and commodity prices in the international market.
Phalla emphasised that the geographical Balkanisation of the economy is reducing participation in the currents of globalisation, in line with the rise of a multi-polar world and the division of economic and trade blocs.
At the same time, he said the increase in the negative effects of climate change is exacerbating the situation.
“Cambodia will continue to face a number of internal structural problems, especially limited competition and the slow pace of economic diversification, as well as continued strong reliance on external demand,” he said.
“Adherence to the defined macroeconomic framework is essential to support the effective implementation of key policy measures. These measures are set out to achieve the goal of economic growth within 6.6%,” Phalla stated.
“This is an indispensable basis for creating new jobs for the people, especially the youth, and providing more opportunities for them to earn higher incomes, as well as to increase national budget revenue,” he added.
