Cambodian growth to suffer biggest flip in region: report

Written by Steve Finch and Nguon Sovan

Wednesday, 08 April 2009 Phnom Penh Post

Productivity to plunge from 10.2pc growth in 2007 to a 1pc contraction this year, World Bank says, but govt officials say drastic economic slide impossible. Photo by: Tracey Shelton A vendor walks through one of Phnom Penh's many slums in this file photo. Economic Downturn 1pc GDP growth forecast for 2008 11.2 percentage point reversal in GDP growth between 2007 and 2009 200,000 extra people forced below the poverty line this year 0-4pc growth forecast for 2010 Source: World Bank CAMBODIA is to see the greatest reversal in productivity growth in the region, the World Bank said Tuesday in a new report that again revised its growth forecast downwards for this year to -1 percent. The bank projected an 11.2 percentage point reversal in GDP growth between 2007 and 2009 in its report "Battling the Forces of Global Recession", with Thailand expected to be the next-worst affected with a 7.6 percentage point reversal in the same period. "The difference ... over two years is the largest in the region, and arises from a sudden drop in garment exports and tourist arrivals," the report said. In a video conference from Tokyo, the report's principal author, World Bank economist Ivailo Izvorski, noted that "low income countries are going to be the worst affected". The report added that a dropoff in available credit in the Cambodian economy would contribute to the contraction in gross domestic product, which, it said, had also hit the construction sector. Only farming was spared from the effects of the global financial crisis, it added. "Agriculture has continued to sustain growth and should provide a well-needed safety net," it said. "Among the four key sectoral sources of growth, agriculture is the only sector sustaining growth, with further progress in rice yields in 2008." The World Bank agreed with the government that layoffs in various sectors could be absorbed by agriculture, as jobless workers return to the countryside, but it doubted that such a scenario could boost economic growth to around 6 percent, as projected by the government this year. "History has shown that agricultural growth has been much slower than manufacturing," regional chief economist for East Asia and Pacific Vikram Nehru said from Tokyo. "I sincerely hope we're wrong and the [Cambodian] government is right," he added. Cheam Yeap, chairman of the National Assembly's Commission of Economy, Finance, Banking and Auditing, strongly rejected the World Bank's forecast Tuesday. "It is impossible to drop to such a level [of economic growth].... Based on my own forecast, I do not believe that GDP can be negative [this year]," he said, adding that given the first quarter had only just ended, it was impossible to predict what would happen during the rest of the year. Prime Minister Hun Sen on Monday again questioned how the different international financial institutions and economic research bodies could come up with such varied projections for Cambodia this year. AGRICULTURE HAS CONTINUED TO SUSTAIN GROWTH AND SHOULD PROVIDE A ... SAFETY NET. "If we listened to the forecast-makers, we would all go stupid - whoever does the forecasts is not important," he said in an opening address at the Asian Economic Forum in Phnom Penh. The World Bank's growth projection for Cambodia is among the lowest so far after the London-based Economist Intelligence Unit forecast a 3 percent contraction in 2009 in its March outlook. The International Monetary Fund last month estimated a 0.5 percent contraction and the Asian Development Bank last week said Cambodia's growth would slow to 2.5 percent. The World Bank's senior country economist, Stephane Guimbert, noted on Tuesday that qualitatively the different agencies generally agreed, but that the agricultural and informal sectors were difficult to evaluate in terms of GDP. Food commodity retail prices at Phnom Penh's markets dropped nearly 5 percent in the first quarter, Trade Promotion Department figures show, and prices have continued on a downward trend. Projections for agricultural GDP growth remain positive for this year. The Economist Intelligence Unit said last month it was still forecasting 3 percent growth in the sector, but the World Bank said that modest gains in agricultural output would be offset by the garment and construction sectors in particular, which have nosedived since the onset of the economic crisis. "Growth in garment exports has shifted from double-digit expansions in earlier years to a 6 percent decline in February 2009. "Construction and real estate have also weakened considerably," it said, adding that imports of construction materials had declined 7 percent in the final quarter of 2008. Tuesday's report also noted potential difficulties for sustained growth in Cambodia's agricultural sector. "The [agricultural] sector remains vulnerable to climatic uncertainties and lower prices of various commodities (eg cassava and rubber) constrain further growth," the report said.