Singapore-based ASEAN+3 Macroeconomic Research Office (AMRO) projected robust growth in the Cambodian economy this year despite stronger external headwinds.
“Real GDP (gross domestic product) growth is forecast to moderate to a more sustainable rate of 7.1 percent in 2019 and 2020, supported by robust construction activities, strong domestic credit growth, and buoyant domestic demand,” the think tank said.
AMRO expects inflation to rise to 2.3 percent this year, slightly up from 2.1 percent last year.
Cambodia’s principal external vulnerabilities will come from its high reliance on a few markets, particularly the European market.
AMRO said if the European Union (EU) suspends the Everything But Arms (EBA) trade scheme from Cambodia, the country’s exports will be adversely affected.
“Moving forward, enhancing competitiveness and diversifying the economic base are critical to maintaining its strong growth potential,” AMRO said. “Cambodia must address key structural challenges, such as the relatively poor infrastructure, limited supply of skilled labor, and institutional weaknesses.”
In February last year, the EU started the 18-month process that could lead to the temporary suspension of Cambodia’s duty-free trading access to the EU market under the EBA scheme. The EU cited concerns about human rights and labor rights issues.
The EU will make a final decision on whether to withdraw the trade privilege from Cambodia this month.
As a Least Developed Country, Cambodia has, for decades, enjoyed duty-free exports of all products, except arms and ammunition, to the EU market.
The country’s export to the EU was worth €5.3 billion (US$5.86 billion) in 2018, about 95 percent of which entered the EU duty-free taking advantage of the EBA preferences, an EU data showed. Clothing and textiles accounted for around three-quarters of the EU imports from the kingdom.
The garment and footwear industry is Cambodia’s largest export sector, employing about 750,000 people in some 1,100 factories.
If the EU strips Cambodia of EBA preferences, tariffs on the country’s garment, footwear, and bicycle products to the EU market will increase 12 percent, 16 percent, and 10 percent, respectively, according to a World Bank report.
The Cambodian government announced in March last year several measures, including lowering logistics and production costs, cutting red tape, among others. These steps would support local manufacturers and exporters in case the EU withdrew the EBA from the kingdom.
Cambodian Prime Minister Hun Sen has said the measures had helped reduce operating costs for producers and exporters by about US$400 million per year.
Sihanoukville Autonomous Port is the leading deep seaport of the Kingdom of Cambodia. Picture credit: Port Autonome de Sihanoukville (PAS)