Cambodia’s economy is projected to grow at 7 percent this year and will slow down slightly in 2020 following a deceleration of economic growth in the country’s top trade partners, according to a report by the Asian Development Bank released yesterday.
ADB’s projection for 2019 is lower than its figure for 2018 – 7.3 percent – resulting from uncertainty over the European Union’s revision of Cambodia’s trade status and the trade war between the United States and China.
With a slowdown forecast in the advanced economies and China – major destinations for Cambodian exports –growth will likely soften for Cambodia’s exports and the tourism sector, ADB said in its flagship annual economic publication.
By sector, industry and construction are expected to feel the adverse effects of the weakening external environment the most, the report says.
Growth in industry is likely to slow to 10.1 percent in 2019 and 9.4 percent in 2020, and construction to 17 percent this year and 16 percent next year.
Growth in the service sector will slow marginally to 6.8 percent while agriculture will grow at 1.7 percent.
With slowing growth, lower international oil prices, and stable food prices, inflation should remain subdued, staying at 2.5 percent this year and next, it says.
Moderating growth and subdued inflation should narrow the country’s current account deficit, as shown in particular by imports of raw materials for export production. The current account deficit will narrow to 12.7 percent of gross domestic product (GDP) this year and 11.8 percent next year.
Robust foreign direct investment (FDI) inflows should more than offset the current account deficit, increasing gross international reserves but also external debt.
The European Union’s revision of Cambodia’s status under its Everything-but-arms (EBA) scheme and the extreme weather conditions the country is facing this year are also seen as major risks to the economy.
ADB country director Sunniya Durrani-Jamal said at the launch of the report that while Cambodia will enjoy robust economic growth, it faces a series of internal and external challenges.
“Cambodia is projected to exhibit strong economic growth over the next two years, despite a weakening external environment,” Ms Durrani-Jamal said.
“A key driver of growth in the future will be improving the quality of Cambodia’s human capital, including technical and vocational skills, to meet the demands of the private sector.”
Regarding the EBA issue she said, “It is still too early to tell, but in the short term, it will drag export growth because garments are a major component of exports. But, let’s wait to see what happens.”
Last Friday, the Cambodian government announced a series of policy reforms to strengthen the economy and reduce reliance on traditional trade partners like the EU.
“[The reforms] are a positive development because they are focused on opening up markets, improving efficiency, easing border controls, facilitating trade, and boosting the private sector. I believe they will improve the business environment while facilitating trade and export,” Ms Durrani-Jamal said.
During a meeting on Tuesday with Aun Pornmoniroth, the Minister of Economy and Finance, a team of experts from the International Monetary Fund highlighted the EBA issue, the US-China trade war, and Brexit as possible threats to the Cambodian economy.
The Ministry of Economy and Finance in January projected that the national economy will expand by 7.3 percent in 2019 on the back of strong growth in the garment, construction, and hospitality sectors.
It also predicted that GDP will expand at a rate of 7.1 percent in 2019 as a result of strong growth in exports and domestic consumption.
According to ADB’s report, growth in Asia will slow down to 5.7 in 2019 and 5.6 percent in 2020.