World Bank Sees Cambodia’s GDP Shrinking 1 Percent ahead of 6 Percent Rebound Next Year

AKP Phnom Penh, June 09, 2020 —

The World Bank forecast Tuesday that Cambodia’s economy would shrink 1.0 percent this year before rebounding 6.0 percent next year.

The projected decline in economic activity in 2020 reverses estimated growth of 7.1 percent last year.

But it is less severe than the contractions forecast for several emerging market and developing economy neighbours, notably Thailand and Malaysia.

Economic activity — as measured by gross domestic product (GDP) — is forecast to shrink 5.0 percent in Thailand and 3.1 percent in Malaysia this year. In the Philippines, GDP is projected to contract 1.9 percent.

Zero growth is forecast for Indonesia, and modest expansions are seen in other ASEAN economies, led by Vietnam where GDP is expected to grow 2.8 percent.

Economic activity is forecast to expand at slower paces of 1.5 percent in Myanmar and 1.0 percent in Laos — the same rate of growth projected for China.

The latest forecasts are contained in the World Bank’s Global Economic Prospects report.

Released in Washington early Tuesday, the report expects the world economy to shrink 5.2 percent this year under the “shock of enormous magnitude” of COVID-19.

“Since 1870, the global economy has experienced 14 global recessions,” the report says.

“Current projections imply that the COVID-19 global recession will be the fourth deepest in this period and the most severe since the end of World War II. It is expected to involve per capita output contractions in an (unprecedentedly) high share of countries.”

For Cambodia — as well as Malaysia, Myanmar and Thailand — “factory closures and the disruption of the production of intermediate inputs have had a negative impact on supply chains,” the report said.

For most of these countries, “domestic restrictions and external spillovers have resulted in a dramatic plunge in consumption, investment, production, and trade flows.”

The bank said this would lead to “the sharpest fall in activity since the Asian financial crisis” of 1997-1998 which had little impact on Cambodia and mainly affected Indonesia, South Korea and Thailand.

Among the 14 East Asia and Pacific countries covered in the report, the bank noted that Cambodia and Indonesia had “heavy reliance on volatile capital flows.”

Vulnerabilities among some countries in the region “could amplify the impact of repeated sudden stops in capital flows,” it said.

But Cambodia was not among countries in the region highlighted for their “elevated” debt (China, Laos, Malaysia, Mongolia and Vietnam), “sizable” fiscal deficits (Laos and Vietnam) or “considerable” foreign holdings of domestic debt (Indonesia, Malaysia and Thailand).

For the 14 economies combined, the bank projected growth of 0.5 percent this year, describing the modest regional expansion as “the lowest rate since 1967”.

That was when the American war in Vietnam was raging and Indonesia — the region’s biggest economy — was emerging from major political unrest. It was also the year that Britain devalued the pound, followed by a decision to withdraw its troops from Singapore and Malaysia.

Yet East Asia and the Pacific is the only region where economic activity is expected to expand this year.

Elsewhere, the sharpest contractions are projected in Latin America and the Caribbean (minus 7.2 percent) followed by Europe and Central Asia (minus 4.7 percent) and the Middle East and North Africa (minus 4.2 percent).

Smaller shrinkages are forecast for Sub-Saharan Africa (minus 2.8 percent) and South Asia (minus 2.7 percent).

In a statement, World Bank Prospects Group Director Ayhan Kose said the COVID-19 recession was likely to be “the first output contraction in emerging and developing economies in at least the past six decades.”

Kose added that “the current episode has already seen by far the fastest and steepest downgrades in global growth forecasts on record.

“If the past is any guide, there may be further growth downgrades in store, implying that policymakers may need to be ready to employ additional measures to support activity.”

“Ceyla Pazarbasioglu, vice president for equitable growth, finance and institutions, described the report as “a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges.”

She said the “first order of business is to address the global health and economic emergency.

“Beyond that, the global community must unite to find ways to rebuild as robust a recovery as possible to prevent more people from falling into poverty and unemployment,” Pazarbasioglu said.

By Sao Da