Testing Times Ahead after Solid Economic Growth

Phnom Penh, 13 February, 2012 – After a solid recovery in 2010, Cambodia’s Gross Domestic Product (GDP) is estimated to grow 7.8 percent year-on-year in 2011, but the economy is expected to expand at a slower growth rate of 6.2 percent this year, according to the Economic Institute of Cambodia (EIC).

In its latest Cambodia Economic Watch report, the EIC revised its growth projections downward as a result of the serious floods that affected Cambodia late last year, the continuing sovereign debt woes in Europe and sluggish economic growth in the United States.

“The damaging flooding that occurred in the second half of 2011 has destroyed a large share of the country’s paddy production, which brought down our growth projection in that sub-sector to 1.5 percent,” said Khin Pisey, the lead author of the report and a economic researcher at the EIC. The institute previously projected a growth rate of 4.1 percent in its July 2011 edition of the Cambodia Economic Watch report.

Likewise, the on-going economic malaise in the United States and debt issues in Europe have dampened consumer demand and confidence, and Cambodia’s garment exports started to slightly feel the pinch in the last few months of last year.
“Although exports of garment and textile products kept increasing throughout the year 2011, imports of fabric in volume terms have started to slow down, indicating a weaker growth in purchasing orders to garment factories in the coming months,” noted Khin Pisey.

Still, the garment and textile industry remains the Cambodian economy’s growth engine with an estimated growth rate of 20.5 percent year-on-year in 2011. However, weakened consumption in Cambodia’s key export markets—the European Union and, especially the United States—is expected to have an impact on the garment and textile sector, which is projected to grow by less than 10 percent this year.

Similarly, the service sector has been affected to some extent by last year’s floods and the external economic environment. As rising water levels damaged road infrastructures and hindered the movements of goods, the local trade sector is estimated to grow at a slower pace than the EIC initially projected.

In sum, the agriculture sector is estimated to grow just 3.3 percent in 2011, but high water levels could boost paddy rice production this year and contribute to a growth rate of 4.5 percent in the agriculture sector in 2012. However as international agricultural commodity prices started to wane this year, declining local prices are downside risks for value-added growth and farmers’ income.

The industry sector is estimated to grow at a double-digit rate of 15.3 percent in 2011, before significantly slowing down to 9.3 percent this year, if Europe’s public debt woes continue to deepen this year, affecting the United States’ market sentiments.

The service sector is also expected to grow at a slow rate of 6.1 percent in 2011 and to further decelerate to 5.1 percent in 2012, as the tourism sector is expected to be affected by reduced disposable incomes of tourists from the United States and Europe.

About the Economic Institute of Cambodia:
Founded in 2003, the Economic Institute of Cambodia is an independent economic think tank. The institute’s expertise includes macro-economic analysis, economic forecast modeling, baseline survey and market research, and business development.

About the Cambodia Economic Watch:
The Cambodia Economic Watch report has been published by EIC since 2004, thanks to the support of the World Bank until 2009. Since then, EIC has continued to publish Cambodia Economic Watch in collaboration with Economics Today magazine.

For media enquiries and interview arrangements with the lead authors, please contact us by e-mail: etm@etmcambodia.com or by phone 023 987 943.


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