Cambodia's garment sector struggles with external headwinds: AMRO

Cambodia is seeing a notable recovery in its economy with a strong bounce back in the service sectors. However, the manufacturing sector, primarily the garment industry, finds itself grappling with external pressures. This scenario emerged from the recent appraisal conducted by the ASEAN+3 Macroeconomic Research Office (AMRO) between September 4 to 14, 2023, during its Annual Consultation Visit to Cambodia.

Led by AMRO principal economist Jinho Choi, the team, including director Kouqing Li and chief economist Hoe Ee Khor, engaged in policy dialogues exploring Cambodia's latest macroeconomic developments and prospective outlooks, the potential risks and vulnerabilities, and the required policy actions to facilitate sustainable growth and ensure financial stability, AMRO said in a media release.

Dr. Choi shared the projected economic growth of Cambodia, anticipating a rise to 5.3 per cent in 2023, a slight increase from 5.2 per cent in 2022. This optimistic outlook is bolstered by a revival in tourism and an upswing in domestic consumption. Dr. Choi noted that "growth is expected to strengthen to 6.2 per cent in 2024 due to resilient consumption and a recovery in garment exports, marking a reversal in the global manufacturing scene."

However, Cambodia's economy faces several impediments, including inflation dynamics influenced significantly by fluctuations in global food and oil prices. While the Consumer Price Index (CPI) inflation showed signs of slowing in the first half of 2023, it might surge in 2024, corresponding to the projected economic growth.

Despite considerable gains, with the current account deficit reducing significantly and robust foreign direct investment inflows, Cambodia's path to economic revival isn't without hurdles. Potential stumbling blocks include economic downturns in China, US, and EU, its significant economic partners, and possible escalations in global oil and food prices spurred by geopolitical tensions and severe El Nino weather patterns.

Moreover, the nation stands vulnerable to a protracted downturn in the real estate sector, posing a considerable threat to the financial and broader economy, coupled with growing dependencies on short-term external debts and non-resident bank deposits.

As Cambodia recuperates, AMRO stressed the urgency for the new government to prioritise reinstating monetary and fiscal buffers while advocating for a staunch commitment to structural reforms to enhance the long-term growth potential of the economy. Among the recommendations are initiating a gradual normalisation of monetary and macroprudential policy measures and intensifying the oversight of the scarcely regulated shadow banking activities to mitigate the associated risks.

Emphasising the necessity for structural reforms, AMRO underscored the importance of economic diversification, particularly in the manufacturing sector, to shield Cambodia from external shocks and enhance its participation in the global value chain.

Fibre2Fashion News Desk (KD)