ROYAL UNIVERSITY OF PHNOM PENH INSTITUTE OF FOREIGN LANGUAGE DEPARTMENT OF INTERNATIONAL STUDIES

Macroeconomics Group Assignment

IS 301: MACROECONOMICS
LECTURER: OK SEIHA
CLASS: A3.1 DIS GROUP MEMBERS: Sovan Monyrath and Sovan Pisey Rattanak

2011-2012

Macroeconomics Group Assignment

Macroeconomics Group Assignment

1. Data on Real GDP growth rate and inflation rate of Cambodia from 2000 to 2011

Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Real GDP(Billion Riels) 14,082 15,230 16,232 17,613 19,434 22,009 24,380 26,870 28,668 28,107 29,799 31,797

Real GDP Growth Rate 8.8% 8.1% 6.6% 8.5% 10.3% 13.3% 10.8% 10.2% 6.7% -2% 6% 6.7%

Inflation Rate -0.8% -0.1% 0.09% 1% 3.9% 6.3% 6.1% 7.7% 25% -0.7% 4% 6.4%

Source: World Economic Outlook Database.1

World Economic Outlook Database.International Monetary Fund.http://www.imf.org/external/pubs/ft/weo/2011/02/weodata/index.aspx (accessed 17th Dec 2011)

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Macroeconomics Group Assignment

2. Plot the Real GDP growth Rate and Inflation rate on the graph.

Real GDP Growth Rate & Inflation Rate

30.00% 25.00% 20.00% Percentage 15.00% Real GDP Growth Rate 10.00% 5.00% 0.00% -5.00% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Inflation Rate

3. Description of the GDP growth rate movement in Cambodia: Through this graph, we can see that the growth rate of gross domestic product in some years is low and in some years is high. In 2002, Cambodia experienced slower growth rate of real gross domestic product at 6.6%, down from 8.1% in 2001. The deceleration of this growth rate is due to a drop in agricultural output, especially paddy production, and importantly due to the floods and drought from 2001 to 2002 2. Nevertheless, the growth rate of industry sector stagnated compared to the one of 2001 and the services sectorsuch as trade and tourists, growth rate was slower than in 2001 due to the decreasing spending of tourists which leaded to the decrease in income of hotel and restaurant sector3. However, since 2002, the growth rate of GDP had reached the peak at 13.3% in 2005. This peak had showed that there was the significant

Chandararot Kang, and Sophal Chan, "CAMBODIAS ANNUAL ECONOMIC REVIEW" Cambodia Development Resource Institute(2003): 3, http://www.cdri.org.kh/webdata/download/caer/caer03e.pdf (accessed 18th December 2011). 3 Ibid.

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Macroeconomics Group Assignment

growth in crop production 4 of the agriculture sector which was assisted in investment in irrigation projects. The industry sector had also contributed a lot to the GDP with the remarkable increasing garment factories 5 in Cambodia. Moreover, the services sector still remained stagnated but there was also the significant growth in tourism6. However, in 2009, the growth rate of GDP was -2%, and this contraction was due to the effect of the global financial crises, started in 2008. As Cambodias economy relies heavily on the garment industry sector, so the financial crises created the external shock to that sector with a drastically drop in the garment 7 product. In the service sector, the real estate bubble and construction sector are in stagnation and they affected the pure speculation of making profit through reselling lands. The financial crises caused lower demand for the prices of agricultural commodities and the plummeting agricultural commodity prices forced farmers and investor into debt8, and the crises created less incentive for foreign direct investment in Cambodia. After the financial crises, Cambodia economy has been recovering due to the production function in real economic sector, effective tax rate in the fiscal policy and the money velocity in the monetary policy.

4. Description of the inflation rate movement in Cambodia: The inflation since 2000 had been gradually risen to 6.3% in 2005; however, it rose significantly starting in 2007 until reaching 25% of inflation in 2008. The cause of this high record of this inflation were the global rise in oil prices 9 which is completely out of the governments control, and falling value of U.S dollars during the financial crisis in 2008. The major contributors to the spike in the inflation were the rise in the price of food 10, fuel and
4

Cambodia Economic Overview.Economics@ANZ. (October 2006): 2, http://www.anz.com/documents/economics/Cambodia_Economic_Overview.pdf (accessed 18th December 2011) 5 Ibid. 6 Ibid., 3. 7 KhinPisey, and Kato Ryuta Ray, "The Impact of the Global Economic Crisis on Cambodia," Economic Development & Policy Series (2010): 1, http://gsir.iuj.ac.jp/publications/pdf/EDP10-3.pdf (accessed December 18, 2011). 8 , "How Will The Financial Crisis Affect Cambodia?," CAMBODIA AS IT IS: OBSERVATIONS, RUMINATIONS, AND COMMENTARY FROM OUTSIDE AND INSIDE CAMBODIA (blog), October 1, 2008, http://aboutcambodia.blogspot.com/2008/10/how-will-financial-crisis-affect.html. 9 Ibid. 10 GintingEdimon, and Bird Kelly, "EXPLAINING INFLATION IN CAMBODIA," Asian Development Bank(2009): 6,http://www.adb.org/Documents/Papers/Inflation-in-Cambodia/Inflation-in-Cambodia.pdf (accessed January 3, 2012).

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Macroeconomics Group Assignment

transport, a strong expansion of monetary growth, and the output gap. In contrast, in 2009, Cambodia experienced 0.7% deflation and started to experience the inflation in the normal rate.

5. Conclusion Starting from 2000 to 2002, Cambodia experienced a little recession and started to grow until 2005, then decline dramatically in 2008 and 2009 due to the effects of the financial crises. At the same time, Cambodia also experienced high inflation in 2008 which the main important cause is the high food prices. Recovering from the financial crises, Cambodia GDP and inflation started to be more stable. It is important to implement the effective macroeconomic framework with the best policies to improve the economy of Cambodia in the future by encouraging domestic private and public investment, increasing production and productivity, agricultural trade development, financial sector reforms, fiscal policy and monetary policy.

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Macroeconomics Group Assignment

Bibliography
Edimon, Ginting, and Bird Kelly."EXPLAINING INFLATION IN CAMBODIA." Asian Development Bank. (2009): 6. http://www.adb.org/Documents/Papers/Inflation-inCambodia/Inflation-in-Cambodia.pdf (accessed January 3, 2012). "How Will The Financial Crisis Affect Cambodia?"CAMBODIA AS IT IS: OBSERVATIONS, RUMINATIONS, AND COMMENTARY FROM OUTSIDE AND INSIDE CAMBODIA (blog), October 1, 2008. http://about-cambodia.blogspot.com/2008/10/howwill-financial-crisis-affect.html (accessed January 3, 2012). Kang, Chandararot, and Sophal Chan. "CAMBODIAS ANNUAL ECONOMIC REVIEW."Cambodia Development Resource Institute(2003): 3. http://www.cdri.org.kh/webdata/download/caer/caer03e.pdf (accessed December 18 2001). Pisey, Khin, and Kato Ryuta Ray."The Impact of the Global Economic Crisis on Cambodia."Economic Development & Policy Series. (2010): 1. http://gsir.iuj.ac.jp/publications/pdf/EDP10-3.pdf (accessed December 18, 2011). World Economic Outlook Database.International Monetary Fund.http://www.imf.org/external/pubs/ft/weo/2011/02/weodata/index.aspx (accessed 17th Dec 2011)

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