Cambodia's real GDP should expand by 6.5% this year, from 6.3% in 2010, thanks to agriculture, tourism and garments, the Asian Development Bank (ADB) said in its 2011 Asian Development Outlook, published in April. The ADB forecast 6.8% GDP growth in 2012, but cautioned that Cambodia must address several major development challenges if it is to achieve sustainable growth and reduce poverty. The ADB's senior country economist, Peter Brimble, said a continued recovery of exports and tourism in 2011 is expected to help Cambodia sustain its return to a long-term growth path of 6-7%. However, he added that the pressure is now on to accelerate economic diversification and improve the general investment climate. The ADB's forecast is in line with the Cambodian government's prediction of 6-7% growth in 2011.

Agriculture, which accounts for about one-third of GDP, is expected to expand by 4.3% this year. Agriculture grew by an estimated 4.2% in 2010, according to the ADB, with paddy-rice production up by around 5%, to 7.9m tonnes, mainly as a result of favourable weather, investment in irrigation and better access to fertilisers and seeds. Livestock production also increased by around 5.5%. Given that around 70% of Cambodians are still involved in farming, the country's effort to promote rice production and exports goes some way to addressing the need to diversify sources of economic growth and reduce rural poverty, the ADB said. However, some observers question whether moves towards large-scale industrialised plantations will benefit smallholders, many of whom farm at a subsistence level.

Growth in industry this year is projected by the ADB at around 10.8%, based on expected garment orders from the US and Europe. The growth in EU-bound exports is partly due to a relaxation of rules of origin requirements on imports of Cambodian clothing, allowing more garments that are made in Cambodia to enter the EU tax-free under the 2001 Everything But Arms treaty. Industry was the main contributor to GDP growth in 2010, according to the ADB, expanding by 11.6% after a contraction in 2009. Last year merchandise exports rose by an estimated 20.8% in US dollar terms, largely reflecting growth in garment exports to the US. However, imports rose by an estimated 15.9%, mainly because of higher prices for oil and raw materials.

The ADB forecast growth of around 5% in services this year, driven by significantly higher tourism receipts. A recovery in global travel saw tourist arrivals to Cambodia in 2010 rise by around 16%, to 2.5m, and tourism receipts increase by 14.5%, to US$1.8bn. Data from the Ministry of Interior and the Ministry of Tourism show arrivals to Cambodia in January 2011 (the latest available data) rising by 18.9% year on year, with arrivals at Phnom Penh International Airport up by 10.9%, Siem Reap International Airport by 30.5%, and arrivals by land and boat up by 15.8%. However, there are signs that higher-spending, long-haul Western tourists may have been replaced by lower-spending regional visitors. The ADB noted that the biggest visitor gains in 2010 were arrivals from Asia, including neighbouring Vietnam (up by 48% to 466,700), South Korea (up 47% to 289,700) and China (up 39% to 177,700).

Risks to the forecasts centre on external events, such as unexpected global economic weakness or higher-than-assumed oil prices, which could hurt prospects for tourism and clothing exports and push up domestic inflation. The ADB forecasts annual inflation of 5.5% in 2011, up from 4% in 2010, owing to external price shocks. Inflation is likely to cause pain for low-income Cambodians, who already spend the majority of their wages on fuel and food. Better regional connectivity with Thailand, Laos and Vietnam could benefit Cambodia, said the ADB, but only with improved competitiveness. The garment, agriculture and tourism sectors are stymied by the high cost of transport, energy and related infrastructure. According to the ADB, transport and logistics costs should be cut, bureaucratic procedures at ports and border crossings streamlined and unofficial fees reduced. The ADB urged Cambodia to improve the quality of existing products and services, and to develop skills to add value to products.