WITH emerging markets in turmoil and the government projecting slower economic growth next year, Cambodian and international analysts are wondering how hard the global crisis will hit the Kingdom's economy.

"Unfortunately, the two ‘pillars' of the Cambodian economy - garments and foreign investment - are those most likely to feel an immediate effect," said a key local business leader, who did not want to be named.

The government on Monday said growth would slow from seven percent this year to 6.5 percent in 2009.

The main challenge, said the businessman, is Cambodia's heavy exposure to the US consumer market through garment exports, as well as a drying up of foreign capital as South Korea - the Kingdom's  largest  investor - cuts overseas projects.

The two factors could add up to massive unemployment and the cancellation of megaprojects, several of which are already under way.

Garment sector growth is expected to also slow to below three percent this year, down from about 20 percent in previous years. A garment-sector  crisis could threaten the jobs of many of the 350,000 workers employed by the industry.

Korean chill

The massive property developments from Korea are also in question, although experts are largely in the dark about their status.

"What is unknown here is to what degree [Korean] projects were leveraged, and this factor might place some of those projects in jeopardy," said the business leader.

World City's Camko City, GS Engineering and Construction's International Financial Complex and BK Global's Pharos Mekong Towers are likely the most affected projects.

The Korean won has fallen 28 percent this year, making it Asia's worst performing currency.

Korean banks have also struggled to raise capital as creditors remain reluctant to roll over debt.

A senior London-based analyst said that the problems in Korea, Japan and China will spill over into Cambodia as part of a general fall in emerging markets.

"Emerging markets need foreign direct investment - with the slowdown,  that makes capital inflows more vulnerable," said Mike Lenhoff, head of research at London-based financial consultancy Brewin Dolphin.

"Small developing economies like Cambodia will suffer the washback of neighbours like China," he said.

Opposition Sam Rainsy Party lawmaker Son Chhay said growth could fall below current estimates due to a larger-than-expected falloff in garments and tourism.  

"The government will be able to keep growth at about five percent but not much better than this," he said.  

 Still, independent economist Sok Sina said the government should be pleased with any level of growth, given the turbulent financial climate.

"We should be happy and proud of our country if it can maintain growth above six percent," he said.

"Some countries may struggle to get just one percent growth."

ADDITIONAL REPORTING BY HOR HAB