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IMF sees exports to US offsetting China slowdown

International Monetary Fund Managing Director Christine Lagarde at a press conference after the IMF meeting in Washington
International Monetary Fund Managing Director Christine Lagarde at a press conference after the IMF meeting in Washington on Sunday. AFP

IMF sees exports to US offsetting China slowdown

Cambodia’s economy is expected to benefit from a strong recovery in the US markets and the fall of global oil prices, driving its high growth trend, according to the International Monetary Fund’s projection for the Asia-Pacific region.

The projection reports stronger exports from Cambodia to the US, which is currently the Kingdom’s largest export destination, boosting domestic production. However, it did warn of sluggish growth in the euro region and a sharper-than-expected slowdown in China’s growth, dampening growth prospects.

Markus Rodlauer, deputy director of the IMF Asia-Pacific Department, said Cambodia is well-poised to take advantage of these global trends, while staying clear of external risks and maintaining its growth numbers.

“On the positive side, lower oil prices will benefit Cambodia. A sharp fall in oil prices will boost domestic demand and should have a positive effect on growth,” Rodlauer said.

“Strengthening of the US recovery is also a positive development as it will lead to higher Cambodian exports, also supporting growth.”

The IMF’s World Economic Outlook forecasts a 3.5 per cent growth for the global economy this year and 3.8 per cent in 2016. The outlook said growth in the US this year is projected at 3.1 per cent, resulting in more jobs and business leading to better consumer confidence.

Trade data from the US shows that Cambodian exports accounted for $2.84 billion last year, a slight increase from the $2.77 billion reported in 2013.

But concerns were raised at the IMF Spring Meeting about whether China can sustain its current growth trend and if it will affect other countries in the region, which are reliant on trade with the Chinese.

Christine Lagarde, managing director of IMF, said that there is strong confidence in growth continuing in China, not at the level that China has experienced in the last decade, but growth of a different nature.

“[Growth] with more quality, growth with a migration from investment to consumption, which seems to be quite deliberated and supported by the authorities, with a clear identification of the areas of risk and the determination to address those risks, and confidence that that level of growth, which is at around 7 per cent, and possibly a little bit below, is satisfactory given the status of development that China has now reached,” she said.

China’s growth rate is expected to continue to drop to 6.8 per cent in 2015 and 6.3 per cent next year. In the first quarter this year, China’s economy grew at its slowest pace in six years after building and manufacturing slowed down, as the country tried to re-engineer its growth model.

Cambodia has a vested interest in China’s economic condition, considering the latter was the Kingdom’s major export destination for rice, with a total of 48,980 tonnes of rice shipped to China, making it the third largest market for Cambodian rice, after France and Poland. Chinese tourists are second among foreign visitors to the Kingdom, with 507,860 Chinese visiting Cambodia last year.

Rodlauer said a sharper-than-expected slowdown in China’s growth would have a dampening impact on Cambodia’s tourism, grants and loans. He added the direct spillover from global financial shocks has been minimal so far due to Cambodia’s limited direct exposure to the international capital markets, given that most capital inflows are in the form of foreign direct investment.

“However, should external financial volatility have significant impact on emerging economies in the region, FDI and tourism could be negatively affected.”

However, he said that the sluggish growth of the Chinese economy should not be a concern for Cambodia as long as it maintains macroeconomic stability and increases competitiveness of exports.

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