Cambodia’s garment exports likely to be marred by US, EU slowdown but…

The likely slowdown in the United States and European countries, which are major export markets for Cambodian garments, might adversely affect the prospects of the sector this year, according to a financial expert.

“In its latest Global Economic Prospects report released in January 2023, the World Bank has cut its growth forecast for the US to 0.5 percent and the EU to 0 percent for 2023. The slow growth in these two important export markets for garments will significantly affect its performance this year,” Jayant Menon, Senior Fellow with ISEAS-Yusof Ishak Institute in Singapore, told Khmer Times in an exclusive interview.

Total garment exports increased by 14.5 percent in 2022, according to government figures.

“The growth of exporting sectors, especially the garment sector, is expected to slow down with a growth of 5.5 percent due to unfavourable external demand, especially EU market,” said Cambodia’s Macroeconomic Situation 2022-23 data prepared by the Ministry of Economy and Finance’s General Department of Policy.

After a fall of 6.1 percent in the Covid-affected 2020, the garment sector picked up with an identical 10.8 percent growth in 2021 and 2022. The garment exports are expected to fall further to 5.5 percent this year.

However, the tourism sector is set for good growth, he pointed out.

“The main factor affecting Cambodia’s tourism this year is China’s reopening. More than anything else, the return of Chinese tourists in large numbers will determine the overall performance of this sector,” Menon said.

The ministry data indicated that tourism picked up significantly with greater improvement in travel confidence after the travelling barriers were removed.

“Cambodia received around 2.3 million international tourists and roughly 13.9 million domestic tourists for the whole year of 2022,” the ministry said.

The government expects a good performance from
the sector this year as well. The country is expected to receive around 4.3 million international tourists and 14 million domestic tourists
in 2023.

“For 2022, the hotels and restaurants sector (which share a strong and close relationship with tourism) is expected to experience a robust two-digit growth
rate of 30 percent after declining for two consecutive years,” the macroeconomic data noted.

It also added that the tourism sector (hotel and restaurants) is expected to continue rising with a growth of 32.7 percent due to global recovery and regional people’s mobility.

With Cambodia set to host the SEA Games this year, the international event is expected to attract a number of tourists from ASEAN countries.

“The easing of restrictions in China, along with the SEA Games, will help attract international tourists to Cambodia. In addition, domestic tourists continue to increase due to further improvement of tourism services and destinations, as well as convenient supporting infrastructure,” the official data noted.

Another sector that is expected to do well is agriculture.

Regarding the performance of agriculture, Menon sounded optimistic. “The Russian invasion of Ukraine has disrupted agricultural markets and raised commodity prices,” he said, adding, “This could benefit Cambodia’s agricultural sector, which could perform better than current forecasts if the conflict persists.”

According to government figures, the agriculture sector is estimated to maintain a favourable growth at 1.1 percent, thanks to the crop sub-sector including rice and other industrial and subsidiary crops (cassava and corn), and livestock and poultry sub-sector, especially pig production.

While analysing the global and Cambodia’s macroeconomic performance and prospects, the ministry said: “According to the World Economic Outlook report by the IMF released in October 2022, the global economy is estimated to grow by 3.2 percent year
on year and 2.7 percent by 2023. Of which, the world’s three largest economies – US, EU, and China – will slow down significantly in 2022 and 2023.”

The ministry observed that the decelerated growth reflected the materialization of downside risks. They are the tightening global financial conditions in most regions, associated with expectations of steeper interest rate hikes by major central banks to fight inflation. Similarly, a sharper slowdown in China due to its zero Covid policy and the worsening property market crisis will also have an impact this year. Besides, the spillover effects from the war in Ukraine with gas supplies from Russia to Europe tightening could cause troubles for countries across the world.

Despite the unfavourable situation in its major export markets, Cambodia was estimated to register a growth of 5.2 percent last year on the back of strong external demand.

“Herd immunity has allowed Cambodia to resume its socioeconomic activities and successfully reopen the country in late 2021. Exported industry sectors, namely garment and non-garment manufacturing maintain their robust growth, thanks to the continued favourable external environment,” MEF’s Secretary of State Vongsey Vissoth said while presenting the macroeconomic data recently.

Earlier this month, the ASEAN+3 Regional Economic Outlook predicted that the tourism and housing industries in Cambodia have been showing signs of recovery this year.

Answering questions from Khmer Times at a virtual press briefing, AMRO Chief Economist Hoe Ee Khor also reiterated that the garment industry is likely to face a setback due to the slowdown in its major export markets.

“Cambodia is a major garment exporter and a lot of such exports go to the US and Europe. However, due to the slowdown in those areas, Cambodia’s garment industry will take a hit. It will be weaker than the previous year,” he said.

However, the Kingdom is expected to offset such setbacks due to the recovery in the tourism and housing industries, Khor pointed out.

“Because of the recovery in China, the tourism sector in Cambodia is getting a big boost. We expect tourism to recover in Cambodia this year and that would help offset the setback in the garment industry,” he said, adding: “We are hopeful about the housing industry, which was down because of the Covid-19 pandemic for several years, is coming back again.”

He said the ongoing resumption of tourism — especially with the return of Chinese tourists — will provide a much-needed boost to growth in ASEAN.

“With recession risks still haunting the United States and Europe, China’s economic reopening cannot come at a better time for the region,” Khor observed.

The economist also pointed out the revival in the fortunes of several other sectors in the country.

“With other manufacturing sectors, other than garments starting to pick up, there would be more investments now. The bicycles and shoe industries are expected to do well this year. Overall, we are quite optimistic about growth in Cambodia,” he added.