Garment exports slowed to 18.3 per cent in July and abruptly dropped to 1.5 per cent in August and is expected to remain sluggish for the rest of the year as the global economy slows down. Meanwhile, imports also increased across all major items led by petroleum, textiles, and others, according to the Annual Consultation Report on Cambodia by the ASEAN+3 Macroeconomic Research Office (AMRO).
Cambodia’s economy is projected to grow by 5.0 per cent in 2022 and 5.4 per cent in 2023. The economy is seen to remain resilient despite the challenging outlook for the manufacturing sector due to the expected slowdown in the US and EU in the second half of 2022. For 2022, exports grew rapidly by 37.7 per cent in the first half, driven by garment exports.
A sharper-than-expected economic downturn in China could result in a moderation in FDI inflows to Cambodia. Area lockdowns and tight border controls in China, as part of its efforts to manage the pandemic, may also cause supply chain disruptions. This could pose a challenge to Cambodia given that it relies heavily on China for intermediate goods, with more than 60 per cent of textile inputs sourced from China.
In 2020, COVID-19 restrictions caused a disruption in the production chain. Coupled with the fall in global demand, this resulted in a lower value of traditional exports from Cambodia, particularly garments. Prior to 2020, more than a quarter of total imports were for materials used in the production of garments.
In 2020, total imports decreased by 6 per cent mainly due to lower imports of garment materials with the global demand for garments collapsing due to the pandemic, before increasing dramatically in 2021 (20.7 per cent of total imports).
Soaring global energy prices in the first half of 2022, reflecting to a large extent the effects of the war in Ukraine, have resulted in the spike in inflation in Cambodia, peaking at 7.8 per cent in June. Inflation fell to 4.9 per cent in August as the fall in oil prices due to a gloomy global outlook helped ease overall price pressures in Cambodia. With global oil prices expected to continue to decline, inflation is forecast to fall from 5.3 per cent in 2022 to 3.0 per cent in 2023, the report added.
On the external front, the current account deficit widened to an unprecedented 45.7 per cent of GDP in 2021 but is expected to narrow to 35.1 per cent of GDP in 2022. FDI inflows into Cambodia are expected to remain stable. International reserves plateaued at $19.5 billion as of June 2022 but remained ample at 9.3 months of imports of goods and services.
Fibre2Fashion News Desk (NB)