Amid stronger external headwinds, Cambodia’s economy is projected to remain robust in 2019 and 2020 with relatively low inflation rate. Real GDP growth is forecast to moderate to a more sustainable rate of 7.1 percent in 2019 and 2020, supported by robust construction activities, strong domestic credit growth, and buoyant domestic demand. Inflation is expected to moderate to 2.1 percent in 2019 amid falling energy prices and remain subdued in 2020.
Cambodia sees a surplus in balance of payments despite a widened current account deficit; this is due to by a larger surplus in the capital and financial accounts, in particular foreign direct investment (FDI) inflows. The financial sector indicators have remained broadly sound with strong capital buffers and stable asset quality, while Cambodia’s fiscal position has strengthened further on the back of persistently strong revenue collection.
The major exernal vulnerabilities of Cambodia stem from its reliance on a few markets such as the E.U. and China. Domestically, rapidly rising minimum wages amid relatively high non-labor production cost such as logistics and electricity, could erode the cost competitiveness of Cambodia’s labor-intensive garment industry. This report’s selected issues delves into the challenges and opportunities that said vulnerabilities pose, namely the (1) withdrawal of the Everything But Arms (EBA) status, (2) China’s growing presence, and (3) Cambodia’s demographic dividend.