ADB Revises Down Growth Forecast, but Rebound Still Expected Next Year

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A guard talks into a loudspeaker as customers buy vegetables before a two-week market shutdown, near Phnom Penh’s Olympic Market on April 24, 2021. (Danielle Keeton-Olsen/VOD)

Cambodia’s economic growth this year is expected at 1.9 percent, down from an earlier estimate of 4 percent, the Asian Development Bank said on Wednesday, as services continued to contract amid Covid-19 disruptions.

In its Asian Development Outlook update, the bank said that as of the end of August, only 29 percent of the region’s population was fully vaccinated, creating a risk of divergent growth trajectories between countries. Cambodia has already vaccinated 78 percent of its population for at least first doses, according to the Health Ministry.

Across Asia, growth estimates ranged from -26 percent in the Cook Islands and -18 percent in Myanmar to 18 percent in the Maldives and 10 percent in India, Kyrgyzstan, Turkmenistan and Uzbekistan.

For Cambodia, the ADB revised down its GDP growth forecast from 4 percent to 1.9 percent for 2021, while still projecting 5.5 percent growth in 2022.

“The protracted pandemic has hurt services and domestic demand,” said country director Sunniya Durrani-Jamal. “Lockdowns and temporary factory closures hit production in the garments, travel goods, and footwear sector earlier this year.”

Industry is expected to grow 5.3 percent for the year and agriculture by 1.5 percent, while services are estimated to contract by 0.6 percent.

“Domestic demand for food, accommodation, transportation and other in-person services has been severely hit by COVID-19 and its associated lockdowns,” the report says.

Construction materials imports and agriculture exports have picked up, however, at 23.5 and 30.3 percent increases, respectively, in the first half of the year.

“The emergence of new COVID-19 variants is a key risk to the outlook,” the report adds. “Other risks include a rapid increase in nonperforming loans when the loan restructuring program is phased out, and a sharp adjustment in the construction and real estate sector.”

The report also notes a “surge” in gold imports this year. National Bank statistics show more gold was imported in the first six months of the year, at around $3.5 billion, than even fabric imports, at $2.3 billion, which are key to the country’s garment industry. Last year, it was gold exports that ballooned. Gold smuggling through Cambodia to Vietnam has long been reported, said to be linked to declining dong values and taxes on gold imports there. Some have speculated that the smuggling was disrupted due to Covid-19 last year. This year, it is imports that appear unusually high.

The current account deficit “will widen significantly if the unbalanced trade in gold continues,” the ADB report says.

Finance Ministry spokesperson Meas Soksensan has not yet responded to questions about the gold imports.

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