Fitch upgrades growth forecast for year but notes oncoming economic challenges2 min read

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Phnom Penh
A general view of Phnom Penh capital, Cambodia. Panha Chhorpoan
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Fitch Solutions on Friday slightly raised its 2019 growth forecast for Cambodia but predicted a slowdown over the next two years amid rising headwinds to exports growth.

“We at Fitch Solutions are revising up our forecast for Cambodia’s real GDP growth to come in at 6.7% in 2019, from 6.5% previously, on the back of strong economic data in the first half of 2019,” Fitch said in a statement on Friday.

Fitch maintained its forecast for GDP growth in Cambodia to slow gradually over the coming years to 6.2 percent in 2020 and 5.9 percent in 2021.

“The threat of Western sanctions is accelerating a re-balancing of the economy that could be positive in the long-term, although there are also risks of the Cambodian economy becoming over-dependent on China,” Fitch said.

The EU in February began process that could suspend Cambodia’s Everything But Arms (EBA) access to duty-free trade with Europe over its human rights and political record.

Quoting data from the National Bank of Cambodia, Fitch said the industrial sector had expanded by 10.5 percent year-on-year in the first half, supported by construction activity on property and public works projects, while the services sector grew by 6.6 percent year-on-year.

Exports growth remained strong, up 13.0 percent year-on-year in the first half of the year, while tourist arrivals were up by a preliminary 11.2 percent year-on-year to reach 3.3 million, Fitch said, citing the central bank.

“Cambodia also has the potential to benefit in the near future from U.S.-China trade tensions, though this is dependent on maintaining preferential trade access to the U.S., which is increasingly in doubt,” Fitch said.

The U.S. is also considering removing Cambodia from its Generalized System of Preferences (GSP) trade scheme, which provides preferential concessions for Cambodian exports to the U.S.

In a separate move to protect European producers, the EU in January imposed tariffs on rice from Cambodia, following a surge in imports.

The Cambodia Rice Federation said in a statement on Thursday that the tariffs on Cambodian rice had hurt 500,000 farmers in the country.

During the first six months of 2019, Cambodia exported only 93,000 tons of rice to the EU, only half the amount that was exported during the same period in 2018, the federation said.

“As if this weren’t painful enough, the EU is now considering the withdrawal of its ‘Everything But Arms’ (EBA) program,” it said in the statement. “A thrashing could lead to a threshing of an industry and a way of life.”

“The CRF appeals to the EU to save the livelihoods of half a million families and to save the work that we have done to earn your respect, that of consumers and that of those we serve,” it said.

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