Economic growth in Asean+3 countries is expected to slow down slightly in 2019 due to a deceleration in capital expenditure and tech investments and the US-China trade war, according to the latest report from the Asean+3 Macroeconomic Research Office (Amro).
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This year the economies of the Asean+3 countries are forecast to grow at 5.1 percent, down from 5.3 percent last year. This will have an impact on Cambodian exports, Amro said in its annual regional economic outlook released on last Wednesday.
Asean+3 refers to the 10 Asean members plus China, Japan, and South Korea.
Growth in the region remains “resilient” against trade headwinds, Amro said, adding, however, that in the short term the risks confronting the region are mainly external.
According to Amro’s Global Risk Map, the biggest risk is still the escalation of global trade tensions from the imposition of additional tariffs by the US. Amro characterises this risk as “medium likelihood-high impact”.
“The specter of such an event could weigh on global growth, which could see a sharper deceleration, potentially exacerbated by a slowdown in the capital expenditure (capex) and the tech cycle.
“The region could also be hit by volatility shocks from turbulent financial markets given that expectations can change suddenly,” it added.
US President Donald Trump tweeted on Sunday that he would raise tariffs on $200 billion worth of Chinese goods to 25 percent from 10 percent by the end of this week.
Amro director Junhong Chang said at a seminar in Fiji last week that the region is still confronted with daunting medium- and long-term structural challenges, which, if not addressed decisively, will impinge on potential growth and prosperity.
She said that the Asean+3 region’s impressive growth catch-up over the past few decades belies a marked slowdown in total factor productivity gains across most countries in the region.
“This trend has to be addressed urgently – at a time when the Fourth Industrial Revolution and the New Economy are transforming the workplace and changing the technological and skill intensity of products.”
“Today’s globalised financial markets are characterised by volatile capital flows. So the question is what we can do as a region to improve the resilience of developing economies to volatility shocks.
“A big part of this surely must be about developing and strengthening the regional financial architecture. In particular, it means developing and deepening our capital markets to recycle the ample savings within the region, and strengthening the regional financial safety net,” she added.
Last month, the World Bank projected Cambodia’s economy will slow down this year, expanding at 7 percent, down from 7.5 percent in 2018, due to weaker external demand. The slowdown is also the result of concerns regarding high energy tariffs and logistics costs in the country coupled with concerns surrounding the unskilled workforce, it said.
“We expect global trade to slow down this year. Moreover, unlike last year when the country experienced fiscal expansion, in 2019 the government underwent fiscal consolidation. All in all, we expect growth this year to be slower than the last,” said Ly Sodeth, senior economist at the World Bank in Cambodia, during a press conference.
The European Union in February started the process that could lead to the potential suspension of Cambodia’s preferential access under the Everything-but-arms (EBA) scheme. The EU market currently accounts for more than a third of Cambodia’s key exports, including garments, footwear, and bicycles.
The World Bank report says that the loss of EBA preferences, which currently provide Cambodia duty-free and quota-free access to the EU, would likely result in slower export growth.
The report also addresses the relation with China. “Given Cambodia’s heavy reliance on capital inflows from China, a sharp slowdown in the Chinese economy could dampen growth prospects,” it says
In its report, Amro suggests that to address near term risks and sustain growth, regional policymakers must calibrate a policy mix corresponding to their respective economies’ cyclical positions in the business and credit cycles, as well as their external positions and financial vulnerabilities.