The World Bank said in its latest report that Cambodia’s economic growth remained robust, underpinned by solid export performance and strong domestic demand.
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The bank’s Cambodia Economic Update Report released yesterday said that Cambodia’s real growth of Gross Domestic Product (GDP) is forecast to decelerate to 7 percent in 2019, down from 7.5 percent in 2018.
The Cambodia Economic Update is a biannual report that provides up-to-date information on short- and medium-term macroeconomic developments in Cambodia.
It says that garment and footwear exports, accounting for about 70 percent of total merchandise exports, grew at 17.7 percent in 2018, but eased slightly to 15.3 percent in June 2019. Footwear exports accelerated, reaching 20 percent year-on-year in June 2019, compared with 19.2 percent in 2018.
As a result, the share of footwear products in the total garment and footwear exports rose gradually to 12 percent in June 2019, compared with only 11 percent in 2018 and 10.8 percent in 2017.
Bustling construction activity has continued, reflecting a sustained appetite for investment. As a result, steel imports skyrocketed, rising 63.5 percent in June 2019, up from 27.7 percent in 2018.
According to the report, the risks in the financial sector continue to grow, with increased exposure to the construction and real estate sector alongside rising indebtedness – where combined bank and microfinance credit now accounts for more than 100 percent of GDP.
A possible withdrawal of the Everything-but-arms (EBA) initiative, as well as a sharp slowdown in the Chinese economy (a potential outcome of continued US-China trade tensions), could substantially dampen Cambodia’s growth prospects.
To enhance Cambodia’s external competitiveness, the bank said the authorities recently introduced measures to facilitate trade by lowering logistics costs, cutting red tape and supporting businesses with a six-day reduction in the number of publicly observed holidays in 2020.
In addition, a relatively large fiscal stimulus to be financed by government savings could be introduced in 2020 to mitigate the negative impacts of the potential withdrawal of the EBA, which limits tariffs on Cambodian exports to the European Union.
Speaking at the launch of the bank’s Cambodia Economic Update Report, Inguna Dobraja, World Bank country manager for Cambodia, said that the growth of Cambodia’s economy is primarily driven by the expansion of exports, as well as investment, and domestic demand.
However, she said the downside risks arise from domestic and external factors, such as the possible withdrawal of the EBA initiative, a sharp slowdown in the Chinese economy plus a prolonged construction and property boom and the increase of credit provided to the construction sector.
She suggested that the policy approaches to manage rising risks are a well-designed fiscal stimulus to be financed by government saving. She says this will help cushion the negative impact of EBA withdrawal, if it occurs. Also, the government should continue to improve external competitiveness by facilitating investment and trade and enhancing the ease of doing business, while advancing Cambodia’s participation in the regional and global value chains and implementing prudent macro economics.
“To move to the next stage of Global Values Chain (GVC) participation, Cambodia will need a much more sophisticated policy mix,” said Ms Dobraja. “This would include expanding and deepening trade agreements, lowering barriers to imported inputs, continue improving the education and skills of the labour force and harnessing the digital economy to support the integration of firms into global value chains.
Chea Chanto, governor of the National Bank of Cambodia, said at the 22nd Asean Banking Conference and 49th Asean Banking Council Meeting on Monday that Cambodia has maintained a sound macro-economic stability with robust growth with low and manageable inflation, which are favourable for the continuous development of the banking sector.
“This year, Cambodia’s economy is projected to grow at a similar rate, driven mainly by continued foreign direct investment, high export growth and strong domestic demand,” Mr Chanto added.