After three weeks of heavy fighting between the Cambodian and Thai armed forces in December, Mekong Strategic Capital assesses Cambodia's economic outlook as a “mixed bag”.

But while negative headwinds are expected to keep GDP growth restrained at around 4% this year, the outlook is up from the 3% forecast four months ago.

If the current government crackdown on online scam centres is effective, “we see risks balanced to the upside”, the Phnom Penh-based investment and advisory firm says in its January update.

“The single most important thing that the RGC ( Royal Government of Cambodia ) can do to support the economy, and protect the future of Cambodia, is to shut down the scam centres.”

The firm expects scam centres and the conflict with Thailand to have a “large short-term impact”, shaving more than 3% off GDP growth over the next 12 months.

Tourism, property sectors

Other negative factors weighing on the economy are a weak tourism sector – “a long way short of potential" – and a property market that’s “ugly” and driving up non-performing loans at banks.

Bad loans are high, but seem to be topping out, with almost 18% either in arrears or restructured, amounting to one in every six borrowers or 22% of GDP. At the same time, credit growth is at record lows, although this reflects demand more than supply.

Merchandise exports are “surprisingly strong”, with US tariffs likely to have had a net positive impact. Exports grew 15% from a year earlier to US$30  billion last year, still largely fuelled by garments but with significant growth in other goods, notably rubber products and furniture along with toys, games, and sporting gear.

Consumption, meanwhile, “appears to be holding up better than expected”, the firm says, pointing to 23% growth in VAT and excise collections in the first nine months of last year.

Last year’s 51% surge in vehicle imports, including a monthly record in December, “supports the stronger-than-expected consumption story”.

Crackdown on scam centres

Arrests and deportations of foreigners involved with scam centres accelerated last year and have continued into the new year, with the extradition to China of Prince Group chairman Chen Zhi and two other Chinese nationals on January 6.

“I really do hope it is a genuine crackdown this time,” says a foreign banker in Phnom Penh. “The evidence so far suggests it is.”

China’s public security ministry, which has been conducting joint investigations with Cambodia’s interior ministry, has set a February 15 deadline for Chen’s associates to turn themselves in.

The ministry is offering leniency to “suspects who voluntarily surrender to public security authorities and truthfully confess their crimes”, says a statement issued on January 15.

Those who refuse to surrender will be “pursued with full efforts and punished according to the law.”

The United States and Britain sanctioned Chen in October, with the US treasury department accusing him of running a “worldwide fraud and money-laundering network fuelled by illegal online gambling and human trafficking”.