Cambodia's GDP growth will slow to 6.7% in 2019: Fitch Solutions

The EU’s withdrawal of trade privileges in the country will hit the manufacturing sector.

Cambodia’s GDP is expected to slow down to 6.7% in 2019 and 6.2% in 2020 as growth in the manufacturing sector will gradually weaken amidst a loss of preferential trade access to the European Union by H2 2020, according to Fitch Solutions.

The manufacturing sector, which comprises 16.3% of GDP, is seen to experience downfalls due to slowing external demand and the EU’s withdrawal of the country’s Everything but Arms (EBA) trade privileges owing to a “deterioration of democracy” and “respect for human rights” in February this year, with a final decision due on February 2020.

The EU constitutes 40% of Cambodia’s total exports.

“Some progress has been made to liberalise the political landscape over recent weeks, particularly after the Cambodian authorities received the EU’s preliminary report into the matter on November 12. However, we believe that the political landscape, at the time of writing, is still far from what would be considered acceptable by the EU to prevent a withdrawal,” the report noted.

On the other hand, growth can still be supplanted by the construction and tourism sectors, with the former expected to be aided by Chinese-led projects. A US$2b (KHR8.09t) expressway linking Phnom Penh to Sihanoukville, where a Chinese-propped Special Economic Zone is located, is currently underway.

In addition, Dara Sakor, a US$3.8b (KHR15.3t) China-controlled investment zone also operating from Sihanoukville is planning to build an international airport, a deep-water seaport, industrial part and a luxury resort over the next few years.

Other projects include a US$294m (KHR1.1t) restoration and expansion of more than 30 roads leading to Sihanoukville Autonomous Port, and plans to transform Preah Sihanouk province into an economic corridor.

Tourist arrivals remained strong at 11% YoY in the first seven months of 2019, with Chinese tourists accounting for 39% of overall arrivals and posting a 37% YoY growth over the same period. Mutual Chinese and Cambodian initiatives to promote their respective tourist destinations will drive the industry over the coming months, the report said.

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