ADB projects drop in inflation to 0.5 percent in Cambodia
ADB projects drop in inflation to 0.5 percent in Cambodia
Asian Development Bank (ADB), a key development partner for Cambodia, has maintained its growth forecast for Cambodia at 5.8 percent for this year and 6.0 percent for 2025 but revised its earlier inflation projection for this year from 2.0 percent to 0.5 percent.
According to the Asian Development Outlook (ADO) September 2024, ADB revised the earlier inflation projection for this year due to a slower-than-expected increase in food prices and the decline in fuel prices in the first half of 2024.
Jyotsana Varma, ADB Country Director for Cambodia, said that the rebound in the manufacturing sector – especially garments, footwear and travel goods (GFT) – is powering the country’s economic growth.
“Agriculture and tourism are steadily gaining ground, while continued inflows of foreign direct investment are fueling the country’s economic momentum,” she said, according to an ADB statement yesterday.
Together, these forces are setting the stage for a promising 2024 and positioning Cambodia for robust growth in 2025 and beyond, Varma added.
The lowering of inflation forecasts reflects reduced prices of fuel-related goods and services, along with a decreased cost of fertilisers providing support to agricultural production.
This will provide much-needed relief for people, especially the most vulnerable, who have faced challenges in recent years due to rising food and fuel prices, the statement added.
The ADO pointed out that GFT exports rose by 16.9 percent in the first half of this year, rebounding from the 18.6 percent decline compared to the same period in the previous year while growth in exports of non-GFT products slowed to 1.3 percent year on year from 21.2 percent.
The imports of construction materials and equipment surged by 23.3 percent in the first half of 2024, driven by public infrastructure investment, the report stated.
In the agriculture sector, ADO projected Cambodia to grow by 1.2 percent this year and 1.3 percent in 2025 and the services industry is forecast to grow by 5.4 percent before tapering to 5.2 percent in the next year.
The forecast was supported by a 22.7 percent year-on-year increase in tourist arrivals in the first six months of this year, reaching 94.8 percent of the pre-pandemic levels in the first half of 2019.
Foreign investment inflows remained strong, though they decelerated slightly to $2 billion by mid-2024, down from $2.1 billion during the same period last year.
This was supported by growth in nonfinancial sectors. However, investment in the financial sector experienced a notable slowdown due to decreased banking profits.
Potential risks to the Kingdom’s economic outlook include slower growth in major economies such as China, Europe, and the United States, high levels of private debt, fluctuating global fuel prices, and significant impacts from extreme weather events.
According to the statement, ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific while sustaining its efforts to eradicate extreme poverty.
Talking to Khmer Times, Chey Tech, socio-economic researcher in Cambodia, said that the ADB outlook was driven primarily by a rebound in tourism, a strong manufacturing sector, and low inflation. However, ADB also acknowledges potential challenges such as global economic uncertainties, rising private debt and climate change.
Tech proposed five key strategies to bolster Cambodia’s economic growth and resilience. First, he stressed the need for the Royal Government of Cambodia (RGC) to diversify the economy beyond agriculture and manufacturing to include services and technology.
Second, he emphasised the importance of improving infrastructure—specifically transportation, energy, and digital connectivity—to attract foreign investment and boost productivity.
Third, addressing climate change by promoting sustainable agriculture and investments in renewable energy which are crucial for ensuring long-term economic growth.
Fourth, strengthening human capital through investments in education, healthcare, and skills development which are also essential for sustained progress.
Finally, Tech recommended enhancing governance, transparency, and the rule of law to further solidify Cambodia’s economic stability.
