-CHIANGRAI TIMES – Cambodia’s economy can grow as much as 8.7 percent this year, its strongest in a decade, propelled by a resurgence in its garments and tourism industries, Cambodian Prime Minister Hun Sen said on Monday.
The Cambodia government’s official estimate for economic growth in 2011 is 6 percent, but Hun Sen said that could be topped by a wide margin.
“There is a possibility of higher growth of 8.7 percent,” Hun Sen told a graduation ceremony at a university in the capital Phnom Penh, agreeing with an estimate by a local think-tank, the Economic Institute of Cambodia (EIC).
Hun Sen, however, cautioned that “unclear economic situations in the US and Europe” will affect the country and that Cambodia should diversify its economy into other sectors such as agriculture and mining.
After decades of war and upheaval, including the Khmer Rouge “killing fields”, Cambodia witnessed an unprecedented boom before the global financial crisis, its economy expanding at around 10 percent annually in the five years leading up to 2008.
EIC economist Neou Seyha said the garment sector generated the country’s strongest source of growth and was projected to bring $3.5 billion in exports this year. That would compare with $2.9 billion last year according to the Commerce Ministry.
“The garment sector is the driver of the economy while other sectors are beginning to recover,” he said.
Peter Brimble, the Asian Development Bank’s senior country economist in Cambodia, said Hun Sen’s 8.7 percent projection was “very different” to the ADB’s forecast of 6.5 percent.
The Asian Development Bank ( ADB) has cut its 2011 and 2012 growth forecastsfor developing Asia amid worries about weak external demand from its key trading partners, according to a report released by the bank Wednesday.
In its Asian Development Outlook Update 2011, ADB trimmed its 2011 full year forecast of growth to 7.5 percent from its previous estimate of 7.8 percent. The 2012 projection is also lowered slightly from 7.7 percent to 7.5 percent.
Asian Development Outlook and its update version are ADB’s flagship economic reports analyzing economic conditions and prospects in Asia and the Pacific. The reports are issued in April and September each year respectively.
According to the analysis, the slowdown in demand from the United States and Europe continues to cast a shadow over the region, with export growth dropping substantially in the second quarter of 2011 in leading economies.
However, ADB found the share of intraregional exports among the largest economies in the region has increased from 42 percent in 2007 to 47 percent in the first half of 2011.
Accelerating price pressures remain another threat to many economies in developing Asia, with the inflation rate for the region expected to be 5.8 percent this year, up from an earlier estimate of 5.3 percent.
In terms of sub-regional growth, the report showed that East Asia remains the key economic driver for developing Asia with expected growth of 8.1 percent in 2011 and 8 percent in 2012. Growth in South Asia slows this year as monetary authorities move to combat high inflation. GDP is expected to expand 7.1 percent in this region, with the inflation forecast marks up to 9.1 percent. Next year growth should pick up to 7.7 percent.
Growth projections for Southeast Asia and Central Asia have also been lowered slightly to 5.4 percent and 6.1 percent respectively for 2011, although overall economic activity in both regions remains buoyant on the back of solid private consumption, investment and favorable export prices.
Taking those facts into account, the report suggested in the long term, the region should press forward with structural reforms that encourage domestic-led inclusive growth.
WEAK GLOBAL DEMAND CLOUDS CHINA’S GROWTH
ADB trimmed its 2011 growth estimate of China to 9.3 percent from 9.6 percent projected in April. In 2012, the growth forecast is slightly lowered to 9.1 percent.
“Downside risks to the growth outlook relate mainly to uncertainty over the external demand, in particular from the European Union, the country’s largest trading partner,” said ADB Chief Economist Changyong Rhee.
According to the report, the 2011 estimate for China’s inflation has been revised up to 5.3 percent from 4.6 percent, largely as a result of the spike in food prices. Those pressures are expected to ease in the second half of the year when inflation is expected to pull back to 4.2 percent in 2012.
ADB found that the tighter monetary conditions and weak demand from Europe and the United States would lead to moderate growth in China in the first half of 2011. However, fixed asset investment expanded by over 25 percent, while foreign direct investment inflows rose to more than 60 million U.S. dollars in the same period. Private consumption was also robust, underpinned by a rise in real incomes of nearly 14 percent in rural area and 7.6 percent in cities.
The report estimates that in 2012, fixed asset investment in China is likely to remain the major growth driver with continued strong investment in housing. Private consumption should also pick up, as well as exports, provided world trade conditions improve.
The report noted that China’s rapid expansion over the past three decades has led to economic imbalances which policy makers are seeking to address in the 12th Five Year Program. Continuing reforms, including rebalancing the investment and export-led pattern of economic growth to put more emphasis on domestic consumption, will be crucial for China’s sustainable, long-term growth.
AGING ASIA REQUIRES REFORMS
Asia’s demographic landscape will change dramatically in the coming years and policy makers will need to manage the process carefully to ensure further growth as population growing older, says the ADB report.
“Asia’s population is aging at a speed unprecedented in human history,” commented Changyong Rhee. “As the population dividend that fueled Asia’s labor-intensive growth becomes a tax, the region must find more innovative ways to sustain its economic expansion, and to provide more comprehensive support for its growing elderly population,” the report states.
Data provided by the report showed that many parts of East and Southeast Asia, with South Korea and Singapore in particular, are already seeing a significant rise in the aging population. China, the largest economy in the region, is set to see the proportion of elderly and working age people quadruple between now and 2050, surpassing the United States.
These demographic challenges will require a range of structural reforms and actions. The report suggested that for middle and advanced aging societies, governments will need to strengthen state support systems for the elderly, which remain largely underdeveloped.
Developing Asian nations must also make their labor markets more flexible, allowing greater mobility of workers from younger, labor–abundant countries to those where labor is scarce, the report said. Increased investments in physical and human capital will also help both older and younger countries sustain rapid growth in the face of demographic transition.