November 22, 2011

WB downgrades Cambodia's economic growth to 6 pct, raises inflation to 7.5 pct


PHNOM PENH, Nov. 22 -- The World Bank slashed Cambodia 's GDP growth to 6 percent this year due to the destructive flood impact and the expected slowdown of the EU and U.S. economies in the second half of 2011 in its report of East Asia and Pacific Economic Update 2011 released on Tuesday.

The revised GDP prediction is 0.8 percentage points lower than the previous forecast of 6.8 percent, and is the same as the forecast by the government of Cambodia.

"The agricultural sector, which accounts for a third of the economy, was previously expected to grow by nearly 4 percent, but is now projected to grow by a mere 1.5 percent for 2011 due to the recent floods in September and October, which are the highest floods in a decade," the bank said in the report.

The floods had killed at least 250 people and over a thousand livestock perished, according to reports from Cambodian authorities. Some 390,000 hectares of rice seedlings and paddy rice plantations were inundated, threatening some 13.5 percent of the country's total paddy rice production.

The report said the expected 6 percent GDP growth in 2011 is being driven by strong exports of goods and services, private investment, and a solid macroeconomic position.

Garment exports to the EU market shot up 61 percent in the first half of 2011, the biggest growth recorded since Cambodia penetrated this market, said Enrique Aldaz-Carroll, a senior country economist of the World Bank to Cambodia, during the release of the report.

Exports of services are expected to continue growing this year led by tourist arrivals, which registered a 13.5 percent gain in the first half of 2011 to some 1.4 million visitors compared to 2010, he added.

The foreign direct investment inflows are forecasted to increase by 15 percent in 2011 to nearly 900 million U.S. dollars or 7.1 percent of GDP, up from 6.7 percent of GDP in 2010, said the report.

Also, the gross foreign reserves are projected to grow by 22 percent to 3.2 billion U.S. dollars or 4.4 months of imports by the end of 2011.

In the meantime, the bank projected that the country's consumer price inflation is expected around 7.5 percent by the end of 2011, up from the previous forecast of around 5 percent.

"The rate is a bit high, but it is not yet at the point of alarming like Vietnam at 23 percent by August," said Chea Huot, the World Bank's senior economist in Cambodia. "The rate is still manageable in Cambodia."

Cambodia's growth prospects for 2012 and 2013 remain strong projected at 6.5 percent per year, said the report. Exports are expected to promote growth because of greater market access granted by the relaxing of the EU's rules of origin and the assumption that the global uncertainty subsides.

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