PHNOM PENH (Reuters) - Growth in Cambodia’s economy is expected to slow slightly next year, the International Monetary Fund (IMF) said on Friday, warning that it would be hit much harder if the European Union suspends preferential trade terms.

Without a suspension, the economy is expected to grow 6.8% in 2020, compared with 7% in 2019, driven by garment exports, the IMF said.

Private sector credit, increasingly concentrated in the real estate and construction sectors, has accelerated and is expected to grow around 28 percent in 2019.

The IMF urged Cambodia to take prompt action to moderate credit growth.

But withdrawal of the EU Everything But Arms (EBA) trade scheme with Cambodia could lead to “a 3 percentage point decline in GDP growth”, the IMF warned.

“Cambodia’s economic outlook is subject to significant downside risks. The on-going Everything but Arms (EBA) review by the EU - Cambodia’s primary export partner - could lead to a suspension of preferential trade access later next year, which could have a large negative impact on economic activity,” the IMF said.

Cambodia has benefited from EBA since 2001, eliminating duties on almost all exports to the European Union, which takes 40% of Cambodian exports.

The European Union has threatened to suspend the benefits because of a crackdown on the opposition and the media by the government of authoritarian Prime Minister Hun Sen, who has ruled the country of 16 million for more than 34 years.

A final decision is expected in February.