Cambodia's economy hit hard by U.S. slowdown - IMF

PHNOM PENH, Sept 23 (Reuters) - Cambodia's economy, one of the fastest growing in Southeast Asia just two years ago, will probably contract by about 2.75 percent this year, hit hard by the slowdown in the United States, the IMF said on Wednesday. "The global economic crisis is having a larger impact on Cambodia's economy than previously anticipated," David Cowen, deputy division chief for the International Monetary Fund's Asia and Pacific Department, told a news conference.

However, the economy will rebound next year with growth of 4.25 percent, added Cowen, who led a team that recently met with local finance officials as part of an IMF mission to Cambodia.

After decades of war and upheaval, including the Khmer Rouge "killing fields", Cambodia witnessed an unprecedented boom before the global financial crisis struck, its economy expanding at around 10 percent annually in the five years leading up to 2008.

The growth, fuelled mainly by garment manufacturing, tourism and real-estate development, came to an abrupt halt during the global recession. Garment export volumes are likely to fall by 15 percent this year, hit by the weak U.S. economy, Cowen said.

Tourist arrivals have fallen by double digits, Cowen said, noting that recent signs of improvement may reflect day-tripping arrivals from across the border rather than wealthier tourists from other parts of the world whose spending lifts the economy.

"Exports are contracting. So we are likely to see negative export growth in Cambodia in 2009. Imports are contracting at an even faster rate," he added, noting that some of that reflected falls in fuel prices.

"The overall level of petroleum imports will be down quite significantly this year," he said.

He expected annual inflation of more than 5 percent near the end of 2009, rising further to about 6 percent next year.

Even though the economy remains one of Asia's smallest, with gross domestic product of around $8.9 billion, international investment had been rising sharply, flowing heavily into the hotel sector, before reversing course in the financial crisis.

Foreign direct investment probably nearly halved to an estimated $490 million this year from $815 million in 2008, with the drop led mainly by construction investment, Cowen said.

Large construction projects have slowed, new project approvals are sharply lower and imports of construction materials are down significantly from last year, he added.
"There's negative growth in construction imports and negative growth in consumer imports."

Bank lending for property was also down, he said, following a real-estate boom that turned the once-sleepy capital into a building site.

But Cambodia's vast agricultural sector, which makes up about 34 percent of the economy, has held up well, with a good harvest expected this year.

And there's ample liquidity in the banking system.

"There has been healthy deposit growth in the system as a whole this year, in part due to very attractive term deposit rates that banks are paying in Cambodia. We have expressed some concern that these high deposit rates could have some impact on bank profitability going forward."

(Writing by Jason Szep; Editing by Alan Raybould)