Briefing Notes for the Launch in Phnom Penh, 6 May 2010
- With around 80% of its exports in 2008 bound for the United States and the EU – the most crisis-affected regions of the world, Cambodia is particularly exposed to the trade shocks. The external vulnerability is further attenuated by the high concentration of the export bundle on the garment sector.
- Thus, as the US and EU economy slid starting in 2008, the exports of Cambodia contracted in 2009, reversing the double digit annual growth of exports recorded over 2005-8. As expected, the hardest hit among the export industries was the garment sector.
- Trade accounts for around half of Cambodia’s GDP. Therefore, when exports slumped and tourism receipts softened, the Cambodian economy slowed down to virtually a zero percent growth in 2009.
- Cambodia has had current deficits over the past 15 years and the current account deficit recorded in 2009 is expected to be still negative, albeit smaller than the 9% deficit in 2008. Capital goods account for much of the imports. Its most important source of imports are Thailand, China and Viet Nam.
- Inflation spiraled downwards in 2009 (relative to corresponding periods in 2008) as oil and food prices fell from recorded highs during the food and fuel crisis experienced in 2008. The low commodity prices experienced for most of 2009, together with depressed domestic demand, ushered in deflation of about 0.8% in 2009.
Monetary and Fiscal Policies
- In concert with many economies in the Southeast Asian subregion, Cambodian authorities engaged on an expansionary fiscal policy to counteract recessionary pressures from the global crisis.
- As a consequence of the fiscal stimulus, a budget deficit is expected for 2009 which is more than twice the size of 2008.
- The monetary authorities, on the other hand, embarked on a loose monetary policy to complement the fiscal stance. Unencumbered by inflationary constraints, the National Bank of Cambodia injected liquidity in the system in 2009. It should be noted that a sizeable portion of the economy is dollarized, which puts constraints on monetary policy.
- Of late, however, inflation has crept up. Headline inflation for January 2010 reached 6.9%, the highest since December 2008.
- Inflation for 2010 is expected to be 5%, assuming there is no spike in fuel prices.
Outlook for 2010
- Given an improving global economic environment in 2010, the trade sector of Cambodia ought to pick up. Besides, since Cambodia tends to export garments to niche markets, so if demand from these revives quicker than anticipated there could be a rapid turnaround in growth.
- Improved tourism receipts and more buoyant investment prospects in 2010 could help perk up demand as the fiscal stimulus is unwound in 2010. The improvements among these sectors would have positive implications on consumer demand.
- The Survey forecasts a 4% economic growth for 2010. This partly reflects the base effects of a zero growth rate in 2009, though.