Cambodia: Economic growth prospects, divergent forecasts, and underlying factors
- Eco News
- Jul 1
- 5 min read
Economic forecasts for Cambodia in 2025 and 2026, as established by leading international organizations, are mixed, reflecting both optimism and caution in a complex global and regional context. The Asian Development Bank (ADB) expects robust growth of around 6.1% in 2025 and 6.2% in 2026, highlighting resilience fueled by export momentum and the recovery of tourism. In contrast, the World Bank offers a more cautious outlook, revising growth downward to 4.0% in 2025 and 4.5% in 2026, citing global trade uncertainties, the impact of tariffs, and slowing domestic investment as the main headwinds.
At the same time, the Cambodian government and the ASEAN+3 Macroeconomic Research Office (AMRO) are presenting interim forecasts close to 5%, highlighting the challenges posed by recent US tariff policies and regional geopolitical tensions, including border friction with Thailand and the broader implications of the trade dynamics between the US and China. This divergence underscores the delicate balance Cambodia must maintain between harnessing its growth potential and mitigating external shocks as it charts its economic future.
Cambodia's economic growth outlook: divergent forecasts and underlying factors
The ADB's “Asian Development Outlook April 2025” report remains optimistic, forecasting Cambodian GDP growth of 6.1% in 2025 and 6.2% in 2026, supported by strong external demand for manufactured goods, particularly apparel, and a steady recovery in tourism. Industrial growth, driven by clothing exports, which jumped 23.5% in 2024, and by non-clothing manufacturing, underpins this outlook. However, the AfDB also warns of risks related to inflationary pressures, weakness in the real estate sector, and geopolitical uncertainties that could disrupt supply chains and trade flows.
In contrast, the World Bank's Cambodia Country Economic Update forecasts a more cautious slowdown in growth to 4.0% in 2025 and 4.5% in 2026. This downward revision reflects growing global uncertainties, including changes in US trade policies—particularly the new tariffs introduced in early 2025—and the prolonged slowdown in Cambodia's real estate sector.
The World Bank stresses the urgency of diversifying the economy beyond traditional sectors such as construction and garment exports, toward higher value-added manufacturing and services, alongside fiscal reforms aimed at creating fiscal space for essential investments.
The Cambodian government's revised projections, influenced by the impact of US tariff policies on key export sectors, point to growth of around 5.2% in 2025 and 5.0% in 2026. These figures are in line with AMRO's more cautious estimates of 4.9% and 4.7%, respectively. The government is actively pursuing strategic initiatives such as the “Pentagon Strategy – Phase 1” and programs aimed at strengthening competitiveness, diversification, and resilience in a global environment marked by high uncertainty.
Key economic sectors and challenges
Manufacturing and exports:
Garment exports remain the mainstay of the Cambodian economy, with significant growth in 2024 and early 2025. However, the sector faces headwinds from higher US tariffs and potential retaliatory measures, which threaten to erode its competitiveness. Non-garment manufacturing, particularly electrical components and automotive accessories, is growing but at a slower pace, highlighting the need to diversify into higher value-added products.
Tourism recovery:
Tourism is experiencing a strong recovery, with international arrivals up by more than 16% compared to the previous year, although this figure remains below pre-pandemic levels. Infrastructure investments, such as the new Techo International Airport and port expansion, aim to improve connectivity and capacity to facilitate continued growth in this sector.
Construction and real estate:
The real estate sector remains sluggish, hampered by tighter credit conditions and investor caution. This slowdown has contributed to a contraction in domestic investment, despite an increase in foreign direct investment (FDI), particularly from China. The prolonged real estate crisis poses risks to economic activity and employment in general.
Inflation and fiscal policy:
Inflation is expected to rise moderately to 3.7% in 2025, before slowing in 2026, influenced by global commodity prices and supply chain disruptions. The government's tax reforms aim to strengthen fiscal sustainability and create room for maneuver to invest in human capital and digital infrastructure, which are essential for long-term growth and economic diversification.
Geopolitical and trade risks
Cambodia's economic outlook is further complicated by geopolitical tensions and trade policy changes. Border tensions with Thailand, although localized, contribute to regional uncertainty and could affect cross-border trade and investment flows. More importantly, the US administration's April 2025 announcement of tariff increases on Cambodian exports has clouded the growth outlook by raising costs and reducing market access for key industries.
These measures are part of the broader context of trade tensions between the US and China, which have indirect repercussions for Cambodia due to supply chain disruptions and changing investment patterns.
The Cambodian government is implementing diplomatic and economic strategies to mitigate these risks, including efforts to diversify its export markets, strengthen its competitiveness, and deepen regional economic integration within ASEAN. The success of these strategies will be critical to sustaining growth in a challenging external environment.
Strategic initiatives and investment opportunities
To counterbalance external risks and internal structural challenges, Cambodia is prioritizing several strategic initiatives:
Infrastructure development:
With a public budget of over $9 billion for 2025, Cambodia is investing heavily in infrastructure projects such as the Techo International Airport, the expansion of the Sihanoukville Port, the Phnom Penh Logistics Center, and the Kampot International Tourism Port. These projects aim to improve connectivity, reduce logistics costs, and attract foreign investment.
Economic diversification and competitiveness:
Programs under the “pentagonal strategy” and other government initiatives aim to broaden the economic base beyond garment manufacturing and construction by promoting sectors such as high value-added manufacturing, tourism, and clean energy. These efforts are intended to strengthen resilience to external shocks and create sustainable jobs.
The AfDB highlights the importance of digital public infrastructure and workforce development to boost productivity and promote economic diversification.
Improving digital skills and capacities is essential to enable Cambodia to move up the value chain in the manufacturing and services sectors.
Outlook
Cambodia's economic outlook for 2025 and 2026 is shaped by the convergence of promising growth factors and significant external and internal challenges. While the Asian Development Bank forecasts strong growth fueled by exports and tourism, the World Bank and other institutions are calling for caution due to risks related to tariffs, slowing investment, and geopolitical tensions, including border friction with Thailand and changes in US trade policy.
Proactive measures by the Cambodian government in infrastructure development, economic diversification, and fiscal reform will be essential to address these uncertainties. Ultimately, Cambodia's ability to maintain inclusive and resilient growth will depend on its capacity to adapt to a rapidly changing global economic environment while leveraging its strategic location and new opportunities.
References:
Asian Development Bank, Asian Development Outlook April 2025
World Bank, Cambodia Country Economic Update June 2025
Cambodia Investment Review, ADB Economic Outlook April 2025
World Bank, Revised Growth Forecast June 2025
Cambodia Government and ASEAN+3 Macroeconomic Research Office Reports June 2025
ASEAN Briefing, Cambodia’s 2025 Economic Outlook January 2025
Asian Development Bank, Cambodia Economy Overview