2023: A Gloomy Outlook of Continued Recovery Amid Global Strife

The outlook for 2023 is looking dim as the economic pressures of Covid recovery, rising inflation and the Russia-Ukraine war look set to continue. However, some signs of hope are being pinned on the reopening of China
People walk near a welcoming sign of year 2023 in Phnom Penh. Kiripost/Siv Channa
People walk near a welcoming sign of year 2023 in Phnom Penh. Kiripost/Siv Channa

The government has said 2023 will be the year of the continuation of restoring work in the economy affected by Covid-19 as GDP is projected to grow only 3.6 percent amid slow global growth.

Cited in the 2023 budget law, the Ministry of Economy and Finance said that the low projection is due to several factors. These include the Russia-Ukraine war, which has contributed to the rising prices of goods, affecting the flow of commercial and financial activities and investments globally.

The Ministry’s GDP forecast for 2023 is lower than earlier projections by 0.2 points.

The budget law added that other factors include the tightening of financial policies by some advanced economies, causing high inflation, and the Zero Covid Policy with strict lockdowns in China, which Beijing recently abandoned.

A person walks near the Ministry of Economy and Finance in Phnom Penh. Kiripost/Siv Channa
A person walks near the Ministry of Economy and Finance in Phnom Penh. Kiripost/Siv Channa

Likely not getting better

Cambodia’s 2023 budget law came out before China’s announced its re-opening to travelers entering the country on January 8, ahead of its New Year.

It has been reported that the reopening of China will benefit some economies, however, it may push up cases of infection.

“2023 depends largely on China’s Covid situation and the war in Ukraine. And it’s likely not getting better,” economist Ngeth Chou told Kiripost, adding that China opening up could benefit Cambodia. “Let’s see, but it may cause trouble too if the Chinese come with Covid,” he said.

Chou said that if the situation in China gets worse, and the war in Ukraine doesn’t stop, it will hurt the world economy. “Especially the EU and countries that depend on Chinese investments, like Cambodia,” Chou said.

He added that when the EU faces economic uncertainty, it could negatively impact Cambodia’s economy as the country depends largely on garment and textile exports to the European bloc.

“Another direct negative impact is we heavily depend on FDIs (foreign direct investment) from China as well,” Chou said.

China opening up

With China opening up, Cambodia, a popular destination for Chinese tourists before Covid, will once again benefit a lot from this, said Chhay Sivlin, president of the Cambodia Association of Travel Agents.

“With the flow of Chinese tourists, we will be able to recover our tourism sector faster than expected,” Sivling told Kiripost.

She added that she is unable to predict exactly how many Chinese tourists will come to Cambodia, adding that the arrivals will also boost the real estate sector.

In a speech in Kratie province, Prime Minister Hun Sen said that Cambodia will not require Chinese tourists to get tested for Covid when they arrive.

“Cambodia doesn’t have any requirement for Chinese people to do anything. [They can] come as tourists normally, whatever other country wants to do, it is their right. But for Cambodia, it’s an invitation to Chinese people, Chinese tourists, come to Cambodia,” Hun Sen said on Monday.

The budget law says the service sector will grow 6.6 percent in 2023, while the restaurant and hotel industry will see a growth of 23.4 percent, pinned on hopes of higher return of foreign tourists.

Cambodia’s biggest FDI

The year 2023 will be difficult as the global economy also faces the same economic hardships. However, continued reforms and more focus on worker skill development in the garment industry will be optimistic, said Kaing Monika, Deputy Secretary General of Garment Manufacturers Association of Cambodia (GMAC).

“Externally, some relocation of orders out of China and the situation in Myanmar would continue to give Cambodia an opportunity,” Monika told Kiripost.

China plays a major role in the global economy and its opening will be positive for the Cambodian economy, Monika said.

“China has been Cambodia’s biggest FDI and I think this trend will continue for many more years, especially in manufacturing,” he added.

The budget law said that the garment industry is forecast to grow 8.1 percent in 2023 based on expectations that the US and EU will buy more and the benefits of relocations of orders out of Myanmar.

However, the Ministry also warned that the industry will face some uncertainties, including competition with neighbors, relocation of orders and uncertainty surrounding trade preferences.

In response, the Ministry said the government has laid out a development strategy 2022-2027 for the garment, shoe and bag sector to improve the investment environment and promote high competition.

Rising inflation and the war in Ukraine have also affected garment workers, leaving many in debt, said Ath Thon, president of the Coalition of Cambodian Apparel Workers’ Democratic Union.

Thon added that in terms of human rights, workers have been exploited, unions have been suppressed, representatives of workers have been fired, and employees have also faced lawsuits.

“As for the perception for 2023, freedom of unions, workers’ rights and other protests will be worse than in 2022 due to the election year. The authorities have blocked many union rallies, but for workers' work, it will be similar to 2022,” Thon told Kiripost.

Sar Mora, president of the Cambodian Food and Service Workers Federation, said that 80 percent of workers are in debt, which is the main concern these days, adding that despite the expected raise of salaries in 2023, there will also be more work and that it will be employers’ strategy to increase labor production dramatically while cutting down staff.

“Employers will make employees work more, planning higher production and will try to reduce the workforce,” Mora told Kiripost.

Mora welcomed the government’s pension fund as “fantastic news”, however, adding that family members should also be covered so workers do not face big expenditures.

Agriculture is forecast to grow 1.1 percent in 2023, and exports of agricultural products will also increase, thanks to free trade agreements with China and South Korea, the budget law states.

Fisheries will grow 0.6 percent, thanks partly to some international funding to boost the sector after a decline of 0.5 percent in 2022.

Construction will see 7.2 percent growth in 2023 on hopes that there will be more foreign investments in the sector to serve the tourism landscape. Real estate is expected to grow 5.2 percent on hopes that people will begin buying more, including condominiums and apartments.

Spread the word globally

As Cambodia heads into 2023, the country continues to outperform in a region already outperforming on a global stage in relation to economic growth, technology adoption and resilience to inflation pressures, said Max Thornton, co-host of Rising Giants podcast.

“We are excited to continue to spread the word globally about the remarkable entrepreneurs, creatives and investors in the country that remain consistent and committed to building the innovation of tomorrow," Thornton told Kiripost.

The hosts of the Rising Giants podcast, Dominic Kalousek and Max Thornton (right). Kiripost/supplied
The hosts of the Rising Giants podcast, Dominic Kalousek and Max Thornton (right). Kiripost/supplied

Thornton said that Rising Giants is the country’s leading entrepreneurship and start-up podcast with an upbeat medium for entrepreneurs, investors and creatives to share their experience working and living.