Cambodia & Economy: Resilience, challenges and prospects in the face of turbulence

As Southeast Asia faces growing economic uncertainty, AMRO's latest annual report provides an uncompromising assessment of Cambodia's strengths and weaknesses in 2025. Between spectacular recovery and new threats, the kingdom is walking a tightrope.

Growth, but more uncertain

Cambodia seemed poised for a strong recovery: after growing by 5% in 2023, the economy accelerated to 6% in 2024, driven by the vitality of the textile sector – the country's main export driver – and sustained demand from American and European partners. But everything changed in spring 2025, when Washington announced new tariffs of up to 36% on Cambodian products. This measure, which came into force on 1 August, immediately affected the country's industrial heartland.

The AMRO predicts a possible slowdown in growth to 5.2% in 2025, then to 4.7% in 2026. The already fragile textile sector would see its growth halved, and the much-hoped-for diversification remains to be achieved. If an international compromise emerges, growth could rebound; otherwise, any further tariff escalation would plunge the economy below 4% annual growth.

Inflation and volatility: the weight of global markets

Although inflation has fallen to historically low levels (0.8% in 2024), it remains particularly unstable, driven by surging food prices, particularly imported fruit and vegetables, and sensitivity to the international economic situation. For 2025, AMRO forecasts a rise in inflation to 2.5%, before returning to 2.3% in 2026, close to pre-crisis levels.

External strength and banking vulnerability

On the financial front, Cambodia has comfortable international reserves, covering nearly nine months of imports, and a solid external position. However, vigilance is required in the banking sector: credit growth is at its lowest level in ten years and the non-performing loan ratio exceeded 7.8% at the beginning of 2025, putting the profitability and soundness of some institutions under pressure.

The National Bank of Cambodia is rolling out accommodative measures, while demanding stronger supervision and risk coverage. A new tool, temporary loan restructuring, aims to prevent a surge in defaults, but AMRO warns against any prolonged deferrals that could worsen the situation in the long term.

Fiscal policy at a time of trade-offs

On the fiscal front, the government has managed to reduce the deficit from 3.9% to 2.1% of GDP in 2024 thanks to drastic cuts in public spending, despite disappointing tax revenues.

For 2025, the deficit is expected to widen to 2.7% of GDP, reflecting slower growth and support measures. However, the public debt ratio, which remains below the critical threshold, is expected to rise in the coming years, requiring the government to maintain strict fiscal discipline and accelerate tax reform.

Business, tourism and structural challenges

The outlook is clouded by other uncertainties: the weak recovery of the real estate and tourism sectors (particularly the slow return of Chinese tourists), dependence on food imports, and the challenge of graduating from least developed country status in 2029.

This transition could jeopardise access to current trade benefits and increase the cost of international financing, undermining the competitiveness of Cambodian exports.

The path to resilience

Given this complex context, AMRO calls on Cambodia to adopt a multidimensional response: targeted support for vulnerable sectors, diversification of trading partners, strengthening of domestic competitiveness and promotion of structural reforms. Investing in education, infrastructure and innovation, while modernising public administration and debt management, are all levers for building sustainable growth.

The Kingdom has demonstrated its ability to bounce back, but now is the time for clear-headedness and strategic caution. The future will depend on Cambodia's ability to anticipate, innovate and negotiate in an increasingly demanding and uncertain international environment.

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1.-AMRO-2025-Annual-Consultation-Report-on-Cambodia-for-publication-reduced.pdf

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