The September Asian Development Outlook (ADO) forecast Cambodia's GDP growth at 6% for 2024. - Photo: The Phnom Penh Post file
PHNOM PENH: Cambodia's economic outlook for 2024 continues to show promise, with gross domestic product (GDP) growth forecast at 6.0%, a slight increase from 2023's 5.8%, according to the Asian Development Outlook (ADO) September 2024 report.
This growth, primarily driven by industrial performance and a steady recovery in the services sector, places Cambodia in a favourable position relative to some of its regional neighbours, though it still faces significant challenges.
According to Asian Development Bank (ADB) country director Jyotsana Varma, quoted on ADB’s website, "the rebound in the manufacturing sector – especially garments, footwear and travel goods [GFT] – is powering the country’s economic growth."
“Agriculture and tourism are steadily gaining ground, while continued inflows of foreign direct investment are fuelling the country’s economic momentum,” she explained. “Together, these forces are setting the stage for a promising 2024 and positioning Cambodia for robust growth in 2025 and beyond.”
In comparison to other countries in Southeast Asia, Cambodia's growth trajectory remains solid, bolstered by external demand and public investment.
“The region as a whole is expected to grow by 4.5% in 2024, with Cambodia standing out for its strong industrial sector performance,” according to the report.
Neighbouring countries like Thailand and Myanmar, on the other hand, face lower growth prospects due to domestic and political uncertainties, with Thailand projected to grow by just 2.3% in 2024, a decline from earlier forecasts.
Myanmar's outlook is similarly bleak, as ongoing conflicts and economic instability continue to weigh heavily on its growth potential.
The report said Cambodia's growth stands alongside the robust economic performance of other Southeast Asian economies like Indonesia and the Philippines, both of which are seeing growth driven by domestic demand and public investment.
Indonesia’s GDP is projected to increase by 5.0% in 2024, driven by election-related spending and a boost in public investment, while the Philippines is expected to maintain growth rates above 6.0%, supported by infrastructure development and strong consumer demand.
Industrial and export performance
A major contributor to the country’s economic performance is its industrial sector, which is forecast to grow by 8.0% in 2024, supported by the rebound in the GFT industry.
GFT exports surged by 16.9% year-on-year in the first half of 2024, following a sharp decline in the same period the previous year.
The sector's recovery underscores the country’s resilience and adaptability in the face of global uncertainties.
However, the growth of other manufacturing exports has slowed significantly, reflecting global economic headwinds that could challenge sustained industrial growth.
Public infrastructure investment has also played a key role in boosting the sector.
“The construction industry saw strong growth, with construction material imports rising by 23.3% in the first half of 2024, underlining the importance of ongoing public projects,” said the report.
Services and tourism sector
Cambodia’s services sector is forecast to grow by 5.4% in 2024, slightly lower than industrial growth but still a key driver of the economy.
“A major part of this recovery is tied to the tourism industry, which saw arrivals increase by 22.7% year-on-year in the first half of 2024,” according to the ADO.
“The return of tourism to near pre-pandemic levels [94.8% of 2019 numbers] is a positive sign for Cambodia’s economy,” the report added.
However, the shift toward more regional tourists, many arriving by land rather than air, suggests that revenue may not fully recover as tourists with lower spending power now constitute a larger share of visitors.
The report noted that Cambodia’s tourism recovery follows trends seen in neighbouring countries like Thailand and the Philippines, both of which are benefiting from increasing tourist arrivals.
“However, the slower return of high-spending tourists is a shared challenge across the region,” it stated.
Agricultural sector: Modest growth amid climate challenges
Cambodia’s agricultural sector is expected to grow by 1.2% in 2024, a relatively modest increase compared to other sectors.
The industry faces challenges from the El Niño weather pattern, which has led to drought conditions in some areas.
“Nevertheless, increased investment in agricultural inputs, such as a 14.6% rise in fertiliser imports and a 22.3% increase in bank credit for agriculture, shows that farmers are making efforts to boost productivity despite adverse conditions,” said the report.
In contrast, countries like Indonesia and Vietnam have shown stronger agricultural performance, aided by higher commodity prices and more favourable weather conditions.
The impact of climate change remains a significant risk for agricultural production across the region, including Cambodia.
Inflation and economic stability
Inflation in Cambodia is expected to remain low in 2024, with a forecast of just 0.5%, down from earlier projections of 2.0%.
The decrease is primarily due to falling fuel prices and stable food costs during the first half of the year.
In comparison, inflation remains a concern for neighbouring countries like the Philippines and Vietnam, where rising food and fuel prices have driven inflationary pressures.
Thailand has also experienced high food inflation, exacerbated by tighter monetary conditions and rising defaults on loans among low-income earners.
“Looking ahead, inflation in Cambodia is expected to rise to 2.5% in 2025 as global fuel and food prices stabilise,” said the report.
However, the current low-inflation environment provides a favourable backdrop for continued economic growth in the near term.
Risks and challenges
The report said that despite Cambodia’s positive economic outlook, several risks could threaten growth.
The global economic slowdown, particularly in key markets such as the US, EU and China, poses a significant downside risk to Cambodia's export-driven industries.
Additionally, the country remains vulnerable to climate-related risks, such as droughts and floods, which could further impact the agricultural sector.
“Cambodia’s real estate market also remains subdued, with declining property prices and fewer transactions, which could affect broader economic sentiment,” the ADO said.
This is a shared challenge with countries like Thailand, where high levels of household debt and political uncertainty are dampening economic recovery. - The Phnom Penh Post/ANN
