Development bank predicts Cambodian economy to shrink this year

Sep 22, 2009, 5:39 GMT

   Phnom Penh - The Asian Development Bank has revised downward its prediction for Cambodia's gross domestic product this year, saying it now expects the kingdom's economy to shrink 1.5 per cent.

   It had previously forecast modest growth for 2009.

   In its update released Tuesday, the bank blamed worse-than-expected garment export figures, less construction activity and fewer tourism arrivals. Along with agriculture, these sectors make up the four pillars of Cambodia's economy.

   However, the bank said it expected matters would improve next year, albeit at a much lower rate than the double-digit annual growth the country has enjoyed for much of this decade.

   'Growth is projected to resume in 2010 at about 3.5 per cent as a gradual recovery in the global economy stimulates clothing exports and tourism,' the bank's Asian Development Outlook 2009 Update said. 'That should provide support for growth in incomes and consumption.'

   The bank said the decline in construction was because of falling foreign direct investment in the sector, particularly from South Korea.

   South Korean companies have invested heavily in Cambodia's property sector in recent years, helping to propel land prices to record highs and creating a bubble that burst last year.

   The bank noted that local inflation had dropped faster than expected and ascribed the trend to lower food and oil prices internationally.

   'The inflation rate for 2009 is now forecast at just 0.8 per cent, revised down,' the bank said. 'It is expected to quicken to about 5 per cent in 2010, reflecting higher prices for imported oil and the improvement in domestic demand.'

   Tourism numbers were down 3 per cent through April although the bank said it expected arrivals to pick up later in 2009 in line with predictions from Cambodia's Tourism Ministry.

   Imports dropped by 18.1 per cent in the first half of 2009 with exports down 10.3 per cent although the bank said the rate of decline in exports could slow.