The government downgraded its economic growth forecast for this year to 6.1 per cent from its earlier 6.5 per cent projection, Ministry of Economy and Finance undersecretary of state Phan Phalla said on Thursday.
Speaking at a public forum on Macroeconomic Management and Budget Law 2020, Phalla said China and the US’ economic growth continues to shrink despite the easing of tensions between the two countries.
Climate change, geopolitics, and now the outbreak of the deadly 2019 Novel Coronavirus hinder their economic growth, which will ripple around the world and impact Cambodia’s economy, he said.
Domestically, the slowdown in the agricultural, construction, tourism and garment export sectors have been main factors in the reduced forecast, he said.
Ministry secretary of state Vongsey Vissoth, who presided over the forum, cited the government ban on online gambling as the main reason for the slowdown in the construction, real-estate and tourism sectors between November and now.
“Though we faced some issues last year, our economy remained strong – as it grew at least seven per cent.
“We are currently facing the widespread of the new coronavirus from China, which is predicted to impact the Chinese economy.
“It will definitely impact us, as China is one of our largest trading partners and tourism source,” said Vissoth.
The potential loss of the EU’s Everything but Arms (EBA) scheme in February looms, he said. The EU will initially impose 20 per cent tariffs on garments imported from Cambodia and 30 per cent on footwear.
“Based on our calculations, we will incur a $500 million loss in exports from the partial withdrawal of EBA.
“The information we’ve gathered is unofficial – we will have to wait and see precise figures from the EU when they make their announcement on February 12,” he said.
A rise in exports to the US and a boom in non-garment sectors will generate many jobs and help absorb the impact of a potential withdrawal, he added.
“I think losing around 35,000 jobs should not be a major concern for us because we have other industries to make up for the losses.
“You have to know that sooner or later, we will lose EBA so we have to be well-prepared,” he said, referring to the EU withdrawing the status as a result of the Kingdom’s graduation from the UN’s Least Developed Countries category.
Garment Manufacturers Association in Cambodia secretary-general Kaing Monika said EU customs import duties will be passed on to local manufacturers in the form of lower free-on-board prices.
“We need to cut costs locally so that we can share the burden with buyers to keep their orders here in Cambodia.
“We, therefore, call on the government to help reduce our business costs” in areas such as logistics and electricity, where costs are greatest, he said. Trimming goods clearance and terminal handling charges at ports is a must.
“Our electricity prices have indeed dropped, but at too slow a rate to be competitive. The upcoming pension scheme implementation is another heavy financial burden and comes at the worst time, in the face of the anticipated turbulence,” said Monika.
Phalla said Cambodia’s garment exports to Europe had seen a one per cent drop last year over 2018 while garment, footwear and bag exports to the US has seen a lot of growth over the last two years.
Exports to the US grew more than 30 per cent in 2018 and 47 per cent last year, he said.
“In 2020, whether or not our exports to Europe drop a little more or remain stagnant, any negative impact will be offset by the rapid growth in exports to the US. We are not concerned about the garment sector,” he said.
Cambodia exported more than $7.97 billion worth of garment, textile and footwear products in the first nine months of last year, up 13.18 per cent year-on-year from $7.044 billion, a General Department of Customs and Excise report said last month.
The US accounted for $2.5 billion of the exports and the EU $2.4 billion – with $670 million going to the UK, Japan $711 million, Asean member states $121 million and other countries $1.5 billion, the report said.