Cambodian Economy Hit Hard by Pandemic But Projected to Recover in 2021

While the Cambodian economy continues to suffer from the impacts of the COVID-19 pandemic, there are signs that economic activity is beginning to pick up. The economy is projected to contract by 2 percent in 2020, but is expected to bounce back and grow by 4 percent in 2021, according to Restrained Recovery, the World Bank’s latest economic update for Cambodia, published today.

With the easing of social distancing measures, domestic economic activity is gradually returning to normal. Consumption is being partly underpinned by unprecedented government intervention, while inflation remained subdued. FDI inflows to projects in non-garment industries and agriculture have been rising, likely attracted by Free Trade Agreements, according to the report.

Although total manufacturing exports have been hit by the pandemic, exports of bicycles, electrical parts, and vehicle parts and accessories are rising, and exports of rice and other agricultural commodities have surged. Domestic tourists have supported a partial recovery of the travel and tourism industry.

“Significant uncertainty remains to Cambodia’s growth outlook. The most important policy goal must be to urgently regain jobs lost and suspended due to the pandemic” said Inguna Dobraja, World Bank Country Manager for Cambodia. “Looking ahead, it is essential that domestic and foreign investment are encouraged to take advantage of recent bilateral and regional free trade agreements. This would be possible through prompt introduction of a competitive investment law and incentive schemes, together with moves to improve the ease of doing business.”

 

To help the country quickly recover from the pandemic, the report recommends boosting pro-poor and growth-enhancing public investment including cash-for-work projects, while promoting labor-intensive sectors to generate jobs by taking advantage of the quick recovery of domestic demand for consumer goods. It also notes the opportunities to facilitate an expansion of domestic and foreign investment arising from recent bilateral and regional free trade agreements, including the Cambodia-China Free Trade Agreement and Regional Comprehensive Economic Partnership (RCEP).

The report also points out the critical importance of developing a strong COVID-19 vaccine infrastructure, as well as closely monitoring economic vulnerabilities arising from the prolonged construction and property boom

Recent high frequency telephone surveys conducted by the World Bank show that the share of respondents who were working declined from 82 percent before the COVID-19 outbreak to 71 percent in May 2020 – a number that remained relatively unchanged in August 2020. The pandemic continued to negatively affect non-farm business activities, but less severely compared to during the immediate onset of the crisis. Income losses remained widespread, though the declines in household income slowed following the launch of a new cash transfer program to assist poor and vulnerable households. The surveys showed that roughly 90 percent of the households identified as poor reported receiving cash relief in August and September.

The report includes a special focus section on the Cambodia Business Pulse Surveys (BPS) taken to understand the economic effects of COVID-19 on businesses. The BPS, conducted in June and September 2020 with over 500 firms, showed that many businesses have re-opened since June. However, sales are still down significantly, especially for micro, small and medium-sized companies, and for firms in Siem Reap.

The Cambodia Economic Update is a biannual report that provides up-to-date information on short- and medium-term macroeconomic developments in Cambodia.

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