Economy: Details about economic growth in the Kingdom for 2025

Recently, three different growth rates for Cambodia's 2025 economic outlook have been announced. Which one should be considered, and how do economists calculate this growth rate?

Cambodia's economic outlook for 2025 is positive. Key sectors are expected to demonstrate steady growth and recovery, driven by industry, tourism, and agriculture. Government forecasts and international financial institutions anticipate this ongoing expansion.

Key Economic Indicators

The Cambodian government has set a GDP growth target of 6.3% for 2025, while the International Monetary Fund (IMF) has adopted a more cautious outlook, forecasting 5.8% growth. Similarly, the Asian Development Bank (ADB) has projected a 6% growth rate.

The IMF projects a 7.8% rise in GDP per capita to almost $3,000 in 2025, compared to 2024 figures. Another source indicates GDP per capita is predicted to soar to around US$3,000 in 2025.

The industrial sector is projected to grow by 8.6%, the service sector by 5.6%, and the agriculture sector by 1.1%. Key growth drivers are expected to be the manufacturing sector, including garments and non-garments, tourism, service-related sectors, and agriculture. Inflation is expected to remain around 2.5%. The IMF anticipates an inflation rise from 0.5% in 2024 to 2% in 2025.

Factors Driving Growth

The non-garment manufacturing industry is maintaining good momentum, supported by external demand and domestic supply. Exports are anticipated to recover strongly, buoyed by the rebound in the garment sector.

Cambodia's tourism sector is demonstrating a robust recovery, contributing approximately US$7 billion to the economy. International arrivals are nearing pre-pandemic levels, with U.S. tourists playing a vital role in this resurgence.

Foreign direct investment (FDI) inflows, particularly in the manufacturing sector, are playing a key role in facilitating Cambodia's economic diversification.

Infrastructure development is a top priority for Cambodia, with the aim of supporting long-term economic growth and enhancing connectivity within the country and the broader ASEAN region.

Risks and Considerations

The IMF has noted that risks to the outlook are tilted to the downside from both external factors and domestic vulnerabilities, including policy changes by major trading partners, geoeconomic fragmentation, and continued weakness in the construction and real estate sectors.

The current account balance is projected to swing back into a deficit due to strong import demand outpacing export recovery.

Graduating from the Least Developed Country category in 2027 may reduce access to concessional financing and preferential trade treatments. The World Bank emphasises the importance of maintaining macro-financial stability by restoring fiscal space and safeguarding the financial sector.

To achieve its vision for 2030, Cambodia needs to maintain a high rate of growth, which can be achieved by improving the business climate, streamlining trade procedures, ensuring reliable energy supply, and strengthening education.

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Measurements

GDP is defined by the following formula: GDP = Consumption + Investment + Government Spending + Net Exports or more succinctly as GDP = C + I + G + NX where consumption (C) represents private-consumption expenditures by households and nonprofit organizations, investment refers to business expenditures.

To calculate economic growth, analysts primarily rely on the measurement of Gross Domestic Product (GDP), which serves as a key indicator of a country's economic performance.

Understanding GDP Growth Calculation

The calculation of GDP growth involves comparing the economic output of one period to another, typically expressed as a percentage change.

Economists differentiate between nominal and real GDP when calculating growth rates. Nominal GDP measures a country's total economic output without adjusting for inflation, while real GDP accounts for inflation, providing a clearer picture of an economy's true growth.

This distinction is crucial because inflation can distort economic performance assessments. For instance, if nominal GDP rises substantially but is coupled with high inflation, real economic growth may be negligible or even negative.To perform a more comprehensive analysis, especially when using quarterly data, economists often annualise growth rates to provide a standardised measure over a year.

Alternative Indicators

While GDP remains the dominant measure of economic growth, it is not without limitations. Some economists advocate for additional indicators such as:

• Gross National Product (GNP): which includes income earned by residents from investments abroad.

• Real Gross National Income (GNI): which considers both domestic production and net income from abroad.

• Quality of Life Metrics: which assess improvements in living standards and overall well-being.

These alternative measures are intended to provide a more comprehensive assessment of economic health, incorporating factors beyond mere output figures, and would be beneficial for the Kingdom.

The calculation of economic growth primarily focuses on changes in GDP, both nominal and real, over specified periods. The methodologies employed not only reflect the quantitative aspects of economic activity but also inform policy decisions that affect national and global economies. Consequently, precise details are essential.