The Asian Development Bank said the slowdown in the garment and construction sectors continued to pose a risk to the economy, estimating a four percent contraction in its latest Cambodia update.
In September, the ADB had revised its April estimate of a 5.5 percent contraction in the economy, severely hit by the COVID-19 pandemic, to a slightly better four percent contraction. On Wednesday, the ADB released a statement stating that while bicycle and electronics production remained buoyant, the critical garment and construction sectors were a cause for concern.
Another risk, the development bank said, would be from a poor wet season harvest, owing to low rainfall in June and July, and the likelihood of subdued consumer demand.
“A sharp drop in orders from Europe and North America has temporarily closed about a third of GTF (garment, textile, and footwear) factories, and the pandemic has slowed construction,” ADB said in the September update of the Asian Development Outlook 2020.
Sunniya Durrani-Jamal, the ADB’s Cambodia country director, said on Wednesday the economy was expected to rebound in 2021, projecting a 5.9 percent growth in GDP, which is closer to the country’s pre-coronavirus growth rate of around seven percent.
Cambodian garment factory workers ride on the back of a truck as they head to their homes at the evening traffic jump of Sre Cheah village outside Phnom Penh, Cambodia, Saturday, Jan. 11, 2020. (AP Photo/Heng Sinith)
The ADB estimated that the service sector will drop 15.1 percent, on account of a massive drop in tourist arrivals, leading to the shutdown of some 3,000 tourism businesses and the layoff of some 45,000 workers in the industry.
The development bank said there have been concerns the pandemic could “destabilize the financial industry or rapidly deplete foreign exchange reserves” but that a widening current account deficit had been offset by capital inflows that had ensured stable reserves.
The World Bank said in June that Cambodia’s $18.7 billion foreign exchange reserves would experience a 10-percent drop this year amid the Cambodian government’s injection of some $1.176 billion stimulus package to offset the dual impacts of the pandemic and the EU’s partial withdrawal of Cambodia’s trade privilege status.
Finance Ministry spokesperson Meas Soksensan said the government was confident in its projection of a 1.9 percent contraction this year, adding it was mindful of managing the current account balance and foreign exchange reserves.
“It’s happening everywhere,” he said, referring to the weak consumer spending and economic distress. “Furthermore, we are using the COVID-19 stimulus package and the fiscal policy to correct the situation.”