The Cambodian economy, which is heavily reliant on the garment industry, could contract by nearly 3% this year as a result of the Covid-19 pandemic, a new report has found, with the collapse of growth drivers such as manufacturing exports.

The World Bank’s latest Economic Update for Cambodia shows the coronavirus is hitting the country’s main drivers of economic growth – tourism, manufacturing exports, and construction – which together account for over 70% of Cambodia’s growth and almost 40% of paid employment.

As a result, the economy in 2020 is expected to register its slowest growth since 1994, contracting by between -1% and -2.9%, according to the ‘Cambodia in the Time of Covid-19’ report.

Poverty in 2020 could increase among households involved in key sectors like tourism, construction, trade, manufacturing and the garment industry by between 3 to 11 percentage points higher than at baseline, or in the absence of Covid-19. The fiscal deficit could reach its highest level in 22 years.

“The global shock triggered by the Covid-19 pandemic has significantly impacted Cambodia’s economy,” says Inguna Dobraja, World Bank country manager for Cambodia. “The World Bank is committed to helping Cambodia deal effectively with the Covid-19 crisis and strengthen the economy for recovery and future resilience.”

The collapse of growth drivers has hurt economic growth and put at least 1.76m jobs at risks. The report also warns that capital inflows are tapering off, which in turn is triggering the easing of real estate market prices, likely ending the construction boom.

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In response to the Covid-19 shock, the report recommends policy options that aim at providing urgent economic relief and public health protection in the immediate term, underpinning an economic recovery in the short term, and fostering macro-fiscal and social resilience in the medium term.

The Cambodian economy depends heavily on the garment industry, which accounts for more than 78% of the country’s total merchandise exports and 20% of its annual economic growth. It is also the main non-agrarian employer in the country with nearly 700,000 garment workers employed in 1,500 factories.

In April, the Garment Manufacturers Association in Cambodia (GMAC) joined forces with representatives from garment supplier nations Vietnam, Pakistan, China, Myanmar, and Bangladesh urging global brands and retailers to consider the potential impacts on workers and smaller suppliers before cancelling orders or delaying payments.