While the World Bank pointed to strong exports and domestic demand for keeping the economy “robust”, it warned on Wednesday that the potential suspension of the ‘EBA’ scheme and a faltering Chinese economy could affect growth prospects.
The World Bank on Wednesday released an update to the biannual “Cambodia Economic Update”, which showed that the economy grew by 7.5 percent in 2018, but could drop to 7 percent this year. The updated growth numbers are the same as the ones released in April during the launch of the economic report.
The update said there could be a substantial dampening of growth because of the suspension of the ‘Everything But Arms’ trade scheme, which is essential to the export-reliant garment sector.
According to the figure provided by World Bank, 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.
It also warned of a sharp slowdown in the Chinese economy, on account of the “trade war” with the United States. Cambodia receives a large amount of its foreign direct investment from China.
“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 U.S.-China trade tensions), could substantially dampen Cambodia’s growth prospects,” reads the update.
The report also pointed increased risks in the financial sector as exposure to the construction and real estate sectors continued to grow, as well as rising indebtedness.
However, Chea Sopheak, deputy director of macroeconomics and fiscal policy at the Economy Ministry, said the loss of the EBA scheme was of little concern to the economy.
He equated the trade privileges to a life jacket that needed to be removed to prove Cambodia could stay afloat.
“Sometimes without taking off the life jacket, we won’t know if we can swim,” he said. “Perhaps we will swallow some water at the beginning, but eventually I think we can be on our own.”
Nget Chou, an economic researcher, said that even though the EBA was only being reviewed currently, and not yet suspended, garment orders had already dropped for the first half of this year.
“The loss of EBA would have an impact on the decline of export to the EU markets,” he said, adding that the drop in orders this year amounted to around $600 million.