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Cambodia’s garment exports slows down with EU recession woes

 

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The predicted economic recession with a trade slowdown this year in the US and European countries has hit major garment export markets like Cambodia. And it is expected to have a far-reaching effect both on the country’s apparel industry and living standards of lower wage earners. Having always been dependent on garment exports as one of the largest foreign exchange earner accounting for almost 60 per cent of Cambodia’s total export value, the post-pandemic recession has hit the country hard.

Export figures expected fall further this year

Due to unfavourable global demand globally especially in the EU markets, the garment segment in Cambodia is expected to slowdown and clock in a growth of just 5.5 per cent this year from 14.5 per cent in 2022. “In its latest Global Economic Prospects report released in January 2023, the World Bank has cut its growth forecast for the US to 0.5 per cent and the EU to 0 per cent for 2023. The slow growth in these two important export markets for garments will significantly affect performance this year,” opined Jayant Menon, Senior Fellow with ISEAS-Yusof Ishak Institute in Singapore in an interview with Khmer Times.

After a fall of 6.1 per cent during pandemic times, the Cambodian garment industry was hopeful as it picked up with an identical 10.8 per cent growth in 2021 and 2022 as the world came back to normal. However, garment exports are expected to fall further to 5.5 per cent this year. Garment, footwear and travel goods segment are the biggest forex earning segment in Cambodia with around 1,100 factories and branches that boosts per capita income by giving employment to around 750,000 workers, mainly women.

US export keeps hope alive

However, not all industry analysts feel the situation is bad as they foresee Cambodian exports continuing to grow. As per World Bank’s recent data, the country’s goods exports grew at 28 per cent year on year (YoY) during January-August 2022. Exports of Cambodian garments to the EU will probably have a small impact, depending if the energy crisis in the EU is handled to a level where Cambodia can export, albeit at a lower level. Low growth across Europe in 2023 is a result of the spill-over effects from the Ukraine war along with strong downward revisions for economies mostly dependent on Russian gas.

The Euro economy which posted a growth of 5.2 per cent in 2021 and 3.1 per cent in 2022, is currently expected to grow only at 0.5 per cent in 2023 although the situation can be better soon, predicts the World Economic Outlook report of IMF.

Just last year, Cambodia exported garments, footwear, and travel goods worth over $9 billion. However, the EU decided in 2020, to withdraw tariff preferences under EBA. Yet, exports to the EU have been increasing continuously ever since, even though Cambodia does not have EBA and GSP.

The US apparel market remains a major destination for Cambodian exporters with many US fashion companies now placing more varied and different orders. The US was Cambodia’s largest export market accounting for 45.6 per cent of total exports last year. As more and more US fashion companies are focussing on expanding and diversifying their garment sourcing base after the supply chain disruption post pandemic, Cambodian garment industry remains hopeful they may be one of the beneficiaries.

 
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