Floods force GDP revision

Wednesday, 12 October 2011
Don Weinland and Soeun Say
Phnom Penh Post

Officials now expect 6 per cent growth
Cambodia has lowered its economic growth projection from 7 to 6 per cent for 2011 after more than a month of flood devastation in the Kingdom and continued economic turmoil in the United States and Europe, Deputy Prime Minister Keat Chhon said yesterday.

The full impact of the floods cannot yet be determined, but growth should remain at or above 6 per cent, officials and experts said. Economic problems abroad will have less of an effect on the Kingdom’s outlook.

Unfavourable domestic and global conditions have also contributed to a lower-than-expected growth forecast of 6.5 per cent for 2012, Keat Chhon said at an International Business Chamber of Cambodia conference in Phnom Penh yesterday.

“We are still worrying that external shock and the devastation of infrastructure and agriculture by floods will affect our economic growth in 2012,” he told reporters after the meeting.

While the government’s original forecast was 7 per cent year-on-year gross domestic product growth in 2011, Prime Minister Hun Sen predicted 8.7 per cent growth last month. Asia Development Bank put the 2011 figure at 6.8 per cent last month.

The ADB projection will stand despite the flood damage, Peter Brimble, the bank’s senior economist for Cambodia, said yesterday. Other than a few tenths of a percentage point, growth should not be stymied by the floods, he said.

“In due course we will need to take into account the damage from the floods, but we think it is early days to start speculation on that,” Brimble said, adding that damages will be taken into account in the ADB’s next economic projections due in March and April 2012.

The floods have killed 207 people and caused US$100 million in damages, the National Committee for Damage Management said on Monday, higher than originally expected. About 126,600 hectares of rice, or about 5.2 per cent of the country’s paddy fields, have been destroyed and another 13 per cent could vanish if waters do not recede, according to the NCDM.

Higher rice prices in Thailand and increased garment exports will help buoy Cambodia’s growth, Acleda Bank CEO and President In Channy said yesterday. The exports should keep the county’s economy from falling below 6 per cent, he said.

Two-fold rice prices, an election promise of Thailand’s new Prime Minister Yingluck Shinawatra, will lead Thai rice millers to increased sourcing in Cambodia, said Tim Purcell, director of consulting firm
Agricultural Development International, on Monday.

The government’s 6 per cent projection is a worst-case scenario, University of Cambodia business and economics lecturer Chheng Kimlong said late yesterday.

While 2011 growth should be higher than 6 per cent, sustained flooding could cause growth to drop to the new estimate, he said.

“We don’t know how long the water will stay in the fields, so we can’t say yet how much of the rice crop will be destroyed,” Chheng Kimlong said.

The floods are primarily responsible for the lower economic outlook, not problems in the United States and Europe as garment exports have stayed strong, he added.

Cambodia exported $2.3 billion in garments between January and August, a nearly 20 per cent increase compared with the same period last year.

Along with the new growth targets for 2011, Deputy Prime Minister Keat Chhon also said Cambodia’s current account deficits will decrease from 8.7 per cent of gross domestic product in 2011 to 8.2 per cent of GDP in 2012.

In addition, export growth would outpace import growth, he said.

The country’s budget deficit will decline from -6.7 per cent of GDP in 2011 to -5.89 per cent of GDP in 2012, Keat Chhon said.

At the same time, the riel will stay stable compared to the dollar and inflation will maintain a rate of about 5.5 per cent, he said.