Monday market plunge will have little effect on growth prospects, official says
Share markets plunged around the world on Monday amid fears of further economic slowdown in the US and Europe, but Cambodia should not see the latest market rout as a threat to its growth prospects, according to a government official.
“The global economy is slower than expected because of the implications of countries borrowing too much for fiscal stimulus packages, but it is still growing,” Ministry of Economy and Finance secretary of state Hang Chuon Naran said.
“It does not yet hold any threat to Cambodia.”
US, European and most Asian stock markets opened dramatically lower on Monday on the back of unease over Europe’s growing debt crisis and worse-than-expected job figures released in the US over the weekend.
Economists have responded by lowering forecasts for the first time since the recovery began in the middle of 2009, according to Bloomberg.
Despite Cambodia’s reliance on the markets in question, Hang Chuon Naran said growing prospects for business in Asia and export product diversity will help maintain the Kingdom’s growth forecasts.
“We will not be reviewing the forecasts for GDP growth this year,” he said. “The 4.5-to-5 percent estimates were already quite conservative. If you look at the IMF forecasts, they are normally quite prudent.”
He conceded that industries heavily reliant on the US and Europe such as garment exports and tourism may feel a squeeze, but said the long-term prospects for growth remain solid.
A key plank in the government’s diversification plan was to attract more regional investment, with ASEAN members high on the list, while increasing the range of products exported to rely less on garments, he said.
Prime Minister Hun Sen highlighted ASEAN’s importance in his opening remarks to the two-day World Economic Forum on East Asia, which closed in Vietnam on Monday, saying the grouping is driving regional integration with its aim to create a single economic zone.
“Deeper regional economic integration is now even more important, given prospects for slower growth in advanced economies,” he said.
Hang Chuon Naran said the level of Cambodia’s exports to ASEAN members is currently low, creating more opportunity to benefit once trade barriers to regional counterparts are removed.
The UN’s Economic and Social Commission for Asia and the Pacific (ESCAP) Trade Facilitation Chief Shamika Sirimanne said ASEAN’s integration plans will pay dividends to Cambodia.
“This is what we need to look into. When those continents [US and Europe] go down, where do the smaller economies like Cambodia turn?” she said.
Developing behemoths such as China and India have the ability to tap into massive domestic markets to rebound from the developed economies’ losses, but smaller developing economies do not, so regional integration makes sense, she said.
“Generally it’s the smaller open economies that benefit more from regional integration because they normally cannot generate a lot of internal demand,” she said.
“Remember, [ASEAN] is a huge region, a huge market we’re talking about, and it’s only going to get bigger and bigger as we go along.”
However she warned that regional integration does not mean immediate advantages, and that Cambodia still must work to facilitate trade.
“If trading barriers are brought down, I think Cambodia could really stand to benefit, but just because barriers disappear it doesn’t create a market – Cambodia needs to put other things in place to remain competitive in the export market.”
However, the garment industry, the source of Cambodia’s leading export, might not benefit from the removal of tariffs among ASEAN’s members because the Kingdom’s garment producers have no control over which markets the garments are sent to, according to Garment Manufacturer’s Association of Cambodia Secretary General Ken Loo.
He said it is difficult to know whether intra-Asian trade will help garment exporters offset potential slackening in US or Europe demand because all 255 exporting garment manufacturers are contracted to brands that decide which markets to sell to.
“But for sure, any market is better than none, and if the US or Europe are dropping then it makes sense to look to Asia,” he said.
He said ASEAN cooperation will ultimately benefit Cambodia because it provides an incentive for the garment suppliers to place orders in Cambodia to export in Asia.