The World Bank has predicted the Kingdom’s real economic growth will slow to around 2.5 percent this year mainly because of the COVID-19 pandemic.
The country consistently achieved economic growth of around 7 percent for several years.
In its just-released publication titled April 2020 Economic Update for East Asia and the Pacific in the time of COVID-19, the World Bank said the coronavirus outbreak caused sharp decelerations in most of Cambodia’s main growth drivers in the first quarter of 2020.
“Real growth is projected to slow sharply to 2.5 percent in 2020, but the growth rate will recover to 5.9 percent in 2021 under the baseline scenario,” the bank’s report stated. It added that the unprecedented global shock triggered by the pandemic has significantly affected the country’s economy in all its major sectors: agriculture, tourism, garments, textiles and construction.
The situation was not helped when the European Union said it will withdraw 20 percent of its free trade status with the country, hitting the country’s coffers by about $1.1 billion from Aug 12.
The free tariff scheme is known as the Everything but Arms (EBA) deal and was cut because the EU decided Cambodia had not done enough work to rectify human rights abuses.
“In the worst case scenario, real growth is projected to diminish to 1 percent in 2020 and 3.9 percent in 2021,” according to the report.
“Spillovers to the construction and real estate sector – one of Cambodia’s growth drivers and heavily invested in by Chinese investors – amid financial market turmoil could potentially be detrimental to growth,” it said.
The report said rebounds in economic activity in China and major markets in 2021 will improve Cambodia’s growth outlook next year.
In the first two months of this year, foreign arrivals in Cambodia dropped by 15 percent. For the whole year of 2019, the country welcomed 6.6 million tourists, a 6.6 percent increase from the year before. The sector generated approximately $5 billion and accounted for 12 percent of the country’s gross domestic product (GDP). Border restrictions and fear of infection have led many people globally to spend more time and even work from home.
A report by the Asian Development Bank (ABD), outlining the economic impact of COVID-19, backs this concern. It states: “Tourism arrivals in many developing Asian economies are expected to decline sharply as a result of numerous travel bans as well as precautionary behaviour.”
In a worst-case scenario for Cambodia, the ABD estimates that the Kingdom’s decline in tourism revenues could be $856.5 million, which translates to about 3.5 percent of the county’s GDP.
Anthony Galliano, group chief executive officer of Cambodian Investment Management, a financial services company, said the partial withdrawal of tariff preferences under the EBA deal, the outbreak’s damaging impact on tourism and also supply chain disruptions added to the gloom.
The exodus of Chinese workers and businesses because of the online gambling ban, the anticipated oversupply of condominiums, office space, and retail malls coming to the market in 2020 and, finally, an overall global economic slowdown, show there is a perfect economic storm brewing, he said.
“Cambodia only dealt with a mild recession phase of a real estate cycle in 2009, during the financial crisis. There are already signs that property speculation has severely declined and prices are moving downwards,” he added.
Chan Sophal, director of the Centre for Policy Studies (CPS), says both the EBA effect and the epidemic and other risks are threatening Cambodia’s financial well-being. He forecast the country’s economic growth will be below 6 percent this year.
“Unlike EBA, the virus could have a serious impact on the economy. It disrupts the supply chain of raw materials for factories in Cambodia, which could lead to the suspension of production and workers,” he said, adding that tourism is also suffering. The number of Chinese tourists, who make up a majority of those who visit Cambodia, has seriously declined. Consequently, hotels and guesthouses, restaurants and transportation service providers are losing money.