Economic Prospects for Cambodia and ASEAN Peers

AKP Phnom Penh, April 03, 2020 —

Forecasts by the Asian Development Bank (ADB) Friday showed that notwithstanding the sharp downturn expected this year, Cambodia will be less affected by economic shocks than many of its peers, although growth prospects are subject to “significant downside risks”.

The ADB said GDP growth in Cambodia was now forecast at 2.3 percent for 2020, down from 7.1 percent last year but more than twice the regional average of only 1.0 percent.

According to the ADB’s twice-yearly Asian Development Outlook, the average is weighed down by Thailand, where GDP is forecast to contract 4.8 percent this year — reversing 2.4 percent growth last year and “continuing a steady slide in recent years.”

Growth is meanwhile expected to stagnate at close to zero in Singapore (0.2 percent) and Malaysia (0.5 percent). The outlook is better for Brunei and the Philippines (both forecast to grow at 2.0 percent).

ASEAN economies forecast to grow faster than Cambodia this year are led by Vietnam (4.8 percent) followed by Myanmar (4.2 percent), Laos (3.5 percent) and Indonesia (2.5 percent).

For Southeast Asia overall, the ADB said the growth slowdown this year reflected COVID-19 and a consequent global slump, especially given the region’s strong trade and investment ties with a slowing China.

Compared with China’s trade tensions with the United States, “the shock from the COVID-19 outbreak this year is much greater,” the ADB said. “Data for the first two months of the year indicate double-digit contractions in industry, services, retail sales, and investment.”

Turning to 2021, the ADB forecast a rebound in economic activity in Cambodia with GDP growth of 5.7 percent — faster than the regional forecast of 4.7 percent. Prospects for Cambodia next year are not as strong as those for Vietnam and Myanmar (both 6.8 percent), the Philippines (6.5 percent) or Laos (6.0 percent).

Cambodia’s outlook is brighter than Malaysia (5.5 percent), Indonesia (5.0 percent), Brunei (3.0 percent), Thailand (2.5 percent) and Singapore (2.0 percent).

These include export demand falling faster than expected under curtailed trade preferences, disruption linked to COVID-19 and advanced economies falling into recession.

At the same time, “increased bank lending connected to real estate continues to pose risks to financial and macroeconomic stability,” the Manila-based bank said.

“The outbreak and temporary border closures in Southeast Asia could apply additional pressure on consumer prices.”
In a separate report released in Washington Monday, the World Bank cut its GDP growth forecast for Cambodia to 2.5 percent for this year, a bit higher than the ADB forecast. That compared with an average of 2.1 percent growth for 12 developing economies in East Asia and the Pacific. In 2021, Cambodia’s growth is seen rebounding 5.9 percent, again slightly stronger than the ADB forecast.

Compared with other ASEAN countries, Cambodia is expected to grow faster this year than Indonesia (2.1 percent). Cambodia also compared favorably with Malaysia (minus 0.1 percent) and especially Thailand (minus 3.0 percent).
The World Bank said Vietnam was expected to be the fastest growing developing economy in ASEAN this year (4.9 percent), Laos (3.6 percent) and Myanmar and the Philippines (3.0 percent).

These forecasts are all based on the World Bank’s baseline scenario for a severe growth slowdown followed by a strong recovery this year.

The bank also made forecasts under its lower case scenario for a deeper contraction followed by a sluggish recovery in 2020.

Under this bleaker outlook, growth is forecast at 1.0 percent for Cambodia whereas the 12 developing economies in the region would contract by 0.5 percent as a whole.

Myanmar would be the fastest-growing developing economy in Southeast Asia (2.0 percent) followed by Laos (2.2 percent) and Vietnam (1.5 percent).

But GDP would shrink in Thailand (minus 5.0 percent), Malaysia (minus 4.6 percent), Indonesia (minus 3.5 percent) and the Philippines (minus 0.5 percent).

The World Bank noted that rebounds in economic activity in China and major markets in 2021 would improve Cambodia’s growth outlook for next year.

“Poverty reduction is expected to continue but at a slower pace,” the bank said.

“Efforts to diversify the agriculture sector and rural households’ incomes as well as to promote agroprocessing are expected to help in the medium term,” it added.

By Sao Da