PHNOM PENH, December 7, 2022— Cambodia’s economy is recovering well after COVID-19, but global headwinds could pose risks to a positive outlook in months to come, the World Bank said in a report released today.
The World Bank forecasts economic growth of 4.8 percent in 2022 as the post-pandemic economic recovery expands thanks to a rebound in tourism, the World Bank’s Cambodia Economic Update for December 2022 said.
Cambodia’s garment industry, travel goods and footwear exports have been resilient. The services sector, especially travel and tourism, has done well since the introduction of the “Living with COVID-19” strategy in late 2021, and total international visitor arrivals have steadily increased, reaching 1.2 million in the first nine months of 2022. Business and consumer confidence have risen and both domestic and foreign investment have increased.
Economic growth is projected to accelerate to 5.2 percent in 2023 as increased hiring supports rising domestic consumption and as inflation recedes.
However, prospects for faster growth face serious risks due to developments beyond Cambodia’s borders.
Cambodia has a small economy that is open to outside trade and investment, and the global growth outlook is gloomy. Global trade growth slowed in the second half of 2022 and is projected to slow sharply in 2023. The economies of developing countries such as Cambodia are particularly vulnerable to rising inflation, slower global economic growth, decreased availability of energy supplies, and higher interest rates.
Cambodia’s manufacturing sector depends on export markets to thrive and would be negatively affected by an extended growth slowdown in its two largest export markets, the United States and the European Union. Similarly, investment and capital inflows would likely diminish as a result of a sustained slowdown in its largest source of foreign direct investment, China.
To shield its economy from a possible drop in external demand, Cambodia could take steps to strengthen its fiscal position and promote its domestic economy, particular its globally attractive tourism industry, said Mariam Sherman, World Bank Country Director for Myanmar, Cambodia and Lao PDR.
“Revenues are up, thanks to the economic recovery and administration improvements,” Salim said. “Broadening the tax base will help ensure the resources needed to promote Cambodia’s economy and weather slowing growth among major trading partners. Tourism and hospitality are particularly promising areas for growth.”
Looking farther into the future, Cambodia’s economy is expected to advance to a growth rate of around 6 percent, as international and domestic tourism adds strength. Participation in recently concluded trade agreements can boost agriculture and agroprocessing industries.
A Special Focus section looks at the impact of inflation on poverty. The section highlights the need to protect the most vulnerable people with an expansion of carefully targeted temporary social protection programs.
The Cambodia Economic Update is focused on short- and medium-term macroeconomic developments and is published twice a year.