By Cam McGrath

Cambodia's economy will feel turbulence from beyond its borders as China’s heavyweight economy faces softer growth prospects and major industrial economies experience a lethargic recovery, the Asian Development Bank (ADB) said in a report released yesterday.

In an update to its flagship annual economic publication, Asian Development Outlook (ADO) 2015, the bank’s economists forecast slightly lower expectations for Cambodia’s economy in the face of “strong economic headwinds.”

Their revised outlook for Cambodia’s economy is 7 per cent GDP growth in 2015 and 7.2 per cent in 2016, down from the 7.3 per cent growth in 2015 and 7.5 per cent in 2016 projected in the ADO report, released in March.

The report said Southeast Asian economies are bearing the brunt of slower-than-expected growth in India as well as China, coupled with concerns over US dollar appreciation in major industrial markets.

Cambodia is also facing some internal pressures including the impact of a drought that has affected its agricultural production.

“The expansion of garment manufacturing, construction and services – in particular tourism, finance and real estate services – continues to propel [Cambodia’s] growth,” said ADB senior country economist Jan Hansen.

“Growth in exports and tourism, however, decelerated somewhat in the first half 2015 while agriculture has been affected by prolonged low rainfall.”

The Kingdom’s garment and footwear exports climbed 11 per cent in the first half of the year, decelerating from 14.5 per cent in the same period in 2014.

Growth in merchandise exports also slowed, moderating from 14 per cent in the first half of 2015 compared to 18.3 per cent one year earlier.

“The garment industry faces increased competition arising from the appreciation of the US dollar, in that the Cambodian economy is heavily dollarised, and from other low-wage competitors including Myanmar,” the report said.

Hiroshi Suzuki, chief economist of the Business Research Institute for Cambodia (BRIC), said that while the extent of China’s economic shocks is yet unclear, the impact on the Kingdom’s economy should be minimal given that its major export markets lie in the United States and the European Union.

“There could be some effect on Cambodian exports to China, and tourists and FDI from China,” he said. “However, the effect would not be so serious because the major market for exports from Cambodia are the US and EU.”

He said the prospect of the US Federal Reserve raising interest rates and the strengthening US dollar would have no adverse effect on exports to the US but could have indirect consequences for Cambodia’s other trade and investment partners.

“For exports to US, there should be no effect,” Suzuki said. “However, there could be some negative effect on exports to EU and other countries including Japan and China.

Also, the appreciation of US dollar would provide some effect on the decision-making of investment to Cambodia from neighboring countries including Japan and China.”

The ADB report also noted the potential economic impact of slowing tourism growth, adding that tourist arrivals increased just 4.6 per cent in the first half of the year, down from 5.2 per cent a year earlier. Tourism accounts for about a fifth of Cambodia’s GDP, according to the Tourism Ministry.

Kong Sopheareak, director of the Statistics and Information Department at the Ministry of Tourism, attributed the slowdown to many regional factors, including political instability in Thailand, a MERS outbreak in South Korea and the simmering South China Sea dispute.

“Problems overseas and in the Asian region caused tourists to be more wary of traveling or crossing borders,” he said.