AMRO Projects Cambodia's Economy To Grow 5.6 Per Cent In 2024
The ASEAN+3 Macroeconomic Research Office (AMRO) predicts that Cambodia's economy will grow 5.6 per cent in 2024, bolstered by a rise in exports and a continued tourism recovery.
AMRO said Cambodia's economy grew robustly by 5 percent in 2023, driven by tourism and supporting service activities, as well as non-garment manufacturing industries, despite a decline in garment exports and challenges faced by the real estate sector.
However, the report emphasised that the country’s recovery trajectory in 2024 is contingent on external risks and domestic vulnerabilities, particularly a prolonged weakness in the real estate sector and a decline in credit quality.
AMRO suggested the Cambodian government restore fiscal space, mitigate financial stability risks, and strengthen structural reforms to ensure resilient growth.
According to AMRO’s press release, these results are based on a preliminary assessment conducted after the research office’s Annual Consultation Visit to Cambodia from May 2 to 13, 2024.
What Are The Findings From AMRO’s Annual Consultation Visit To Cambodia?
Jinho Choi, Principal Economist at AMRO, said the research office projects Cambodia’s economy to grow by 5.6 per cent in 2024, and 5.9 per cent in 2025.
"A recovery in the garment sector, sustained expansion in other manufacturing exports, and continued tourism rebound will support the ongoing economic recovery," said Choi.
Cambodia: Consumer Price Index, Inflation, Current Account, FDI
The preliminary assessment revealed that Cambodia's continuous reliance on imports to meet domestic demand resulted in substantial fluctuations in consumer prices.
- Consumer price index (CPI) inflation declined to 2.1 per cent in 2023 from a peak of 7.8 percent in June 2022.
- CPI inflation is forecast at 2.5 per cent in 2024 and 2.6 percent in 2025, converging to the pre-pandemic trend.
- The current account (CA) balance (representing imports and exports of goods and services, payments made to foreign investors, and other transfers such as foreign aid) turned into a surplus of 1.3 per cent of the GDP in 2023, underpinned by a significant reduction in trade deficits.
Cambodia’s CA is projected to register a smaller surplus of 0.6 per cent of the GDP in 2024 and 0.1 percent of the GDP in 2025, in line with the recovery in demand for imported goods as the economy strengthens.
Foreign direct investment (FDI) inflows remained resilient at 9.3 percent of the GDP in 2023.
Non-Performing Loans Reduced Profitability Of Banks
Amid an uncertain outlook and cautious lending attitudes among banks, credit growth decelerated sharply to 4.7 per cent (year-over-year) in February 2024, from 18.2 per cent in December 2022.
While sufficient capital buffers are in place, the surge in non-performing loan (NPL) ratios and a narrowing interest margin have significantly reduced the profitability of financial institutions.
What Risks and Challenges Will Cambodia's Economy Face In 2024?
AMRO has stated that Cambodia is currently confronted with short-term risks that are mainly external, as well as domestic vulnerabilities that could hinder post-pandemic recovery.
US and EU Trade Policies, Commodity Prices
Cambodia is highly vulnerable to a sharper-than-expected slowdown in major economies, with potential shifts in US and EU trade policies posing additional risks. Cambodia's inflation is also vulnerable to the risk of a spike in global commodity prices.
Continued Rise Of Non-Performing Loans
A gradual rise in NPLs may continue to exert substantial pressure on banks' profitability, thus steadily eroding capital buffers. A deepening of financial distress among real estate developers could lead to heightened credit risks in the banking sector.
Risks Without Climate Change Mitigation Measures
Scarring effects of the pandemic have reduced capital formation and may pose structural challenges to long-term growth potential. A failure to implement climate change adaptation and mitigation measures could also bring a major long-term economic risk.
Policy To Rebuild Fiscal Buffers and Safeguard Financial Stability In Cambodia – 2024
AMRO has suggested that Cambodia should:
- Increase the efficiency of its expenditure to enhance economic development outcomes and boost growth potential
- Raise revenues to secure funds for development needs
- Streamline tax incentives for investment
- Resume its post-COVID normalisation of forbearance policies next year;
- Closely monitor sectoral NPLs and ensure that banks maintain adequate provisions.
Other issues to review include shadow banking activities in the real estate sector and to ensure timely implementation of the Pentagonal Strategy Phase I, including nurturing human capital and promoting FDI, escalating physical and digital infrastructure development, accelerating exports diversification and enhancing Cambodia's role in the global value chain.
Cambodia’s Economic Outlook 2024
AMRO’s Chief Economist, Hoe Ee Khor, told Xinhua news agency that Cambodia is one of the countries with the fastest growth in the region.
Khor emphasised that the garment sector's growth will rebound in 2024 due to stronger demand for consumer goods in major advanced markets.
Additionally, he told Xinhua that the non-garment sector is forecast to sustain its strong growth momentum, supported by stable foreign direct investment inflows.
"A robust tourism recovery, fueled by increased flight availability and the gradual return of foreign tourists, coupled with pent-up domestic consumption, will further bolster the ongoing improvement in the service sectors," he added.
Khor also said the construction sector may experience a slower recovery pace, with growth potentially falling short of pre-pandemic levels due to the prolonged real estate downturn.