Cambodias garment exports could face headwinds from lacklustre global demand

Cambodia's garment exports could face headwinds from lacklustre global demand

Cambodia's concentration in garment production, along with slowing growth in China – one of its key sources of investment, trade and concessional loans – are seen among the headwinds facing its overall economic strength, a new report says.

While the country has retained its B2 rating at the same level as last year thanks to its robust and stable growth path and modest government debt burden, an annual update by Moody's Investors Service says garment exports and tourism, key drivers of growth, face headwinds from lacklustre global demand.

The international credit rating agency also sees Cambodia's real economic growth edging lower in 2016, to 6.8% from 7.0% in 2015.

Moody's points out that Cambodia's robust GDP growth in recent years has been accompanied by rapid credit growth. It says the pace of increase in overall credit, and the risks associated with speculative real estate activity in some markets, point to probability of a boom-bust cycle — which would have severe effects on the economy and banking system — despite the central bank having implemented measures to curb growth in bank loans.

Slowing growth in China (Aa3 negative) will also have negative implications for Cambodia's economy, given China's importance as a source of investment, trade, and concessional loans.

On the upside, Cambodia stands to gain from the formation of the Association of Southeast Asian Nations' (ASEAN) Economic Community in December 2015, because it will gain a foothold in the large and growing ASEAN market.

Recent figures show that the volume of EU clothing imports from Cambodia shot up by 12.6% in 2015 and were up by 17.7% in the first three months of 2016. However, the volume of imports from Cambodia into the US fell 15.3% year-on-year in the six months from January to June.

Bangladesh leads US apparel import growth in June

EU clothing imports from China continue to plunge