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Cambodia: Resilient Growth Backed by Strong Fiscal Stimulus and High Vaccination Rates

The early lifting of COVID-19 restrictions boosted domestic activity while strong external demand supported its recovery in the first half of 2022. As the economy recovers and COVID-19 becomes endemic, it will be vital to refocus policy toward structural reforms that will help improve the long-term growth potential of the economy.

This preliminary assessment was made by the ASEAN+3 Macroeconomic Research Office (AMRO) after its Annual Consultation Visit to Cambodia from July 20 to August 3, 2022.

The mission was led by AMRO Deputy Group Head and Senior Economist, Jinho Choi. AMRO Chief Economist, Hoe Ee Khor participated in the policy meetings. The discussions focused on the outlook for the post-pandemic recovery, and on sustaining growth while rebuilding fiscal space and maintaining financial stability amid strong headwinds.

Economic developments and outlook

“The Cambodian economy is projected to grow by 5.0 percent in 2022, up from 3.0 percent in 2021. In line with Cambodia’s strategy of living with COVID-19, we expect the domestic economy to continue to improve, supported by high vaccination rates and enhanced health protocols,” said Dr. Choi. “However, the outlook for exports will be challenging as the US and EU are expected to slow down sharply in the second half of this year, which could weigh heavily on the garment sector.”

Consumer price index (CPI) inflation spiked in 2022, reflecting soaring global energy and food prices. The rise in food prices is acutely felt by the population as food accounts for 45 percent of the consumption basket. Average inflation for the first half of this year was 6.6 percent, compared to 2.9 percent last year. Upward price pressures on energy and food products are expected to spill over to other goods, exerting broader inflationary pressures, with CPI inflation forecasted to rise to 5.9 percent in 2022.

The current account deficit widened to an unprecedented level at 45 percent of GDP in 2021, largely due to a surge in gold imports while imports of consumption and intermediate goods also grew robustly in line with the economic recovery. Nevertheless, the overall balance of payments maintained a slight surplus on account of foreign direct investment (FDI) inflows, external borrowing, and drawdown in offshore deposits.

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