Cambodia’s economy is forecast to grow at 5.5 percent in 2023 and 6 percent in 2024, due to a stronger tourist rebound and faster growth in the services sector, according to a report by Asian Development Bank (ADB).
According to the Asian Development Outlook in April 2023, tourism is anticipated to grow 7.3 percent in 2023 before slowing to 6.8 percent in 2024. Meanwhile, inflationary pressures are expected to decrease to 3 percent in 2023 and 4 percent in 2024.
“Cambodia’s economy grew by an estimated 5.2 percent in 2022, owing primarily to rising external demand for Cambodian products and tourism services, which led to a revival of demand for food and accommodation, and growth in local trade, transport, and communications subsectors,” it said.
In addition, with improved confidence in travel and the removal of mobility restrictions, international visitor arrivals staged a strong rebound to about 2.3 million in 2022 from about 200,000 in 2021.
Jyotsana Varma, ADB Country Director for Cambodia, said that despite weaker global demand, Cambodia’s economy continued to perform well in 2022, led by ongoing tourism recovery.
“Cambodia’s economic outlook is positive with robust growth, shrinking current account deficit, and moderate inflation in 2023,” she said.
Sophie Doung T. Nguyen, Country Economist at ADB Cambodia, said that except for Cambodia, all nations' economies are anticipated to be lower in 2023 than they were in 2022. In terms of trade in 2022, the ASEAN market accounted for about 6.8 percent of Cambodia's exports. Also, Europe and the United States are large markets for Cambodia, which had an impact on the country's outlook in 2022.
“However, in our forecast for Cambodia in 2023, the growth is to be higher than in 2022 due to many factors, including the Para Games, SEA Games, and National Election that will boost domestic consumption,” she said. “It’s very unique for Cambodia this year.”
Nevertheless, the growth outlook is subject to downside risks, including weaker growth in the US and Europe, high private debt, disappointing tourist arrivals from China and foreign direct investment, soaring energy prices, and extreme weather.
Doung T. Nguyen said that the high level of private debt could be wasted on consumption. When people are in debt, they reduce their consumption. As a result, economic growth is expected to be lower.
She added that when the company has more debt, it is less likely to invest more. Therefore, this is a big issue that Cambodia must keep an eye on.
“Apart from consumption and investment, if private debt isn’t addressed it will drag on the banking,” she said. “The banking sector has played a major role in mediating the credit economy, so many investments will be slowed. That is another thing that we need to look at and monitor very closely.”
In 2022, growth in agriculture, and exports of garments, footwear and travel goods decelerated due to weak external demand in the United States and Europe, the main export destinations. The industrial sector, however, continues to benefit from policy reforms, including the Investment Law 2021 which created a one-stop service for investors, and new trade agreements.
Industrial output is expected to grow by 5.8 percent in 2023 before accelerating to 7.8 percent in 2024. Growth in construction is expected to remain slow. Agriculture is forecast to grow 1.1 percent this year and 1.2 percent in 2024, boosted by crop production for exports.
Poullang Doung, Senior Economic Officer at ADB Cambodia, said that with the government sector slowing, industrial production is expected to only grow by 5.8 percent in 2023. However, he said he needs to keep monitoring the situation of the economy closely, particularly in the United States. He will modify it if there is a change, he added.
“We are impacted by the external environment, so we need to keep monitoring the situation more closely,” Doung said. “If needed, we will revise our prediction.”
Asian Development Outlook April 2023 also said that scaling up green investment in priority sectors, such as renewable energy, climate-smart agriculture and climate-resilient infrastructure, will help unlock Cambodia’s potential long-term growth.
ADB is implementing $2.4 billion of investment projects in Cambodia, with average annual lending of more than $350 million from 2016 to 2022. In addition, ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific while sustaining its efforts to eradicate extreme poverty.