publication December 6, 2019

Cambodia Economic Update, December 2019: Upgrading Cambodia in Global Value Chains

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Recent Macroeconomic Developments

  • While remaining robust, the economy has eased, projected to decelerate to 7% this year. Regional growth also slowed in the first half of 2019.
  • Exports moderated amid weakening global demand and heightened trade policy uncertainty. Bustling construction activity, however, continued.
  • Investment appetite remained strong, but foreign direct investments (FDI) inflows slowed (and large proportion continued to finance construction).
  • Downside risks: Everything But Arms (EBA) suspension, a sharp slowdown in the Chinese economy, and potential vulnerabilities arising from prolonged construction boom.

Risks and Policy Approaches

Downside risks, arising from domestic and external factors:

  • Possible withdrawal of the EBA initiative;
  • A sharp slowdown in the Chinese economy; and
  • A prolonged construction and property boom and the increase of credit provided to the construction sector.

Policy approaches to manage rising risks:

  • A well designed fiscal stimulus to be financed by government savings will help cushion negative impacts of EBA withdrawal, if occurs;
  • Continue to improve external competitiveness by facilitating investment and trade and enhancing the ease of doing businesses, while advancing Cambodia’s participation in regional and global value chains (see special focus); and
  • Implement macroprudential policies.