Agriculture, tourism expected to drive growth
Stephane Guimbert: Economy Specialist
The World Bank’s East Asia Economic Half-Yearly Update, which looks at regional economic growth including the Cambodian economy, was released early in November 2009. The World Bank Cambodia Newsletter had the opportunity to interview World Bank Senior Country Economist Stephane Guimbert on Cambodia’s economic outlook.
Please could you tell me, what is the outlook for the Cambodian economy?
After a decade of very rapid growth, Cambodia’s economy is contracting by 2.2 percent in 2009. Our projections suggest a better outlook for 2010, with a slow recovery and 4 percent growth. However this recovery would be slow by the standards of Cambodia’s rapid growth over 1998-2008. Our analysis of the economy suggests that the recovery would be driven by continued growth in agriculture and an expected rebound in tourism. The rebound in construction would be slow, while uncertainties in the garment sector remain high.
Let me also remind you of the uncertainties surrounding economic forecasts. There are a lot of questions in Cambodia because institutions like ours have somewhat different economic forecasts or have made important revisions to their forecasts this year. It is important to understand that this largely reflects the uncertainty in the economy at the moment. Forecasts for the global economy have also been adjusted many times this year and analysts still hold very different views about the strength of the recovery. In addition, the structure of the Cambodian economy has changed drastically over the past ten years (just consider that agriculture used to account for half of GDP and now accounts for less than a third) and that increases the uncertainty about the economy’s reaction to the massive changes in the global economy.
In addition to traditional unknowns (e.g. because agriculture output depends on weather), there are a number of uncertainties this year: tourism could pick up more slowly because of the H1N1 virus or if the global recovery is slow; or construction could pick up faster since construction material prices have gone down.
Agriculture is one of the key sectors contributing to GDP. Recently Cambodia was severely affected by Typhoon Ketsana and many rice paddy fields and infrastructure were destroyed. How will this affect Cambodia’s economy in 2010?
The Government has requested the World Bank to support a Post Disaster Needs Assessment of the impact of Typhoon Ketsana. The team, a joint team of several government agencies and several development partners including the World Bank, is in the field at the moment. This will give us a better understanding of the impact and the needs to mitigate such risks in the future.
Our preliminary assessment, based on data collected by the NCDM, is that some 180,000 families have been affected and thousands of hectares of paddy rice have been lost. The macroeconomic effect might not be very large (perhaps in the order of 0.1 to 0.3 percent of GDP), but this masks disparities. First, some provinces have been quite severely affected, especially in Kampong Thom and in the North East. Second, the most vulnerable families – with few assets and little savings – have been disproportionately affected.
The economy in Cambodia seem a lot worse now than in 2008. How have employment and the livelihood of the poor been affected?
Only a fifth of all households have a job in sectors directly affected by the crisis (garments, construction, and tourism). Urban households and richer households are more likely to be affected through these sectors, but the income impact is greatest among poorer and rural households, for whom these jobs, if present, account for a far larger share of income. Projections suggest that the crisis could add 1 to 4 percentage points to the poverty headcount between 2007 and 2010: in other words, compared with the encouraging trajectory of the past decade, when the number of poor was steadily being reduced, the crisis would either mark a slowdown in this trend, or a reversal.
Perhaps equally important is the large number of young Cambodians who enter the labor market every year (around 250,000). The challenge is for the economy to create that many jobs every year. This requires a diversification of the economy, to various agriculture products but also to industries that create jobs (as the garment sector has done over the past decade).
Another challenge is that, to respond to the increase in food prices in early 2008 and the loss of jobs and incomes in late 2008 and 2009, many households have contracted debt or sold assets (including land). This makes these households more vulnerable in the future if they cannot generate the income necessary to maintain their levels of consumption.
For more information contact:
Chamroeun Mudita
Rural Development Officer
cmudita@worldbank.org
(Source: The World Bank Newsletter: October-November 2009)