Cambodia’s Economy at a Crossroads: Resilience Amid Global Headwinds

The British Chamber of Commerce in Cambodia (BritCham Cambodia) made headlines yesterday in partnership with the World Bank, offering its members an exclusive deep dive into the Cambodia Economic Update 2026.

In a packed auditorium in Phnom Penh, experts and entrepreneurs unpacked a mixed economic picture: global shocks shaking the Kingdom, but also real opportunities to rebound stronger. In a fiercely competitive Southeast Asian region, Cambodia refuses to fold and is betting on bold reforms.

Headwinds: Real Estate Slump, Border Pressures, and Trade Turmoil

No sugarcoating in the World Bank’s December 2025 diagnosis. The real estate market, once a pillar of domestic growth, is showing signs of fatigue.

Property developers, long accustomed to condominium booms in Sihanoukville and Phnom Penh, now face a glut of unsold inventory and a cooling domestic demand. The result: bank lending is stagnating, limiting households and SMEs alike. Add to that continued border disruptions—conflicts with Thailand and tightened customs checks—hurting tourism and cross-border labor flows. The hospitality sector, still recovering from the post-Covid slump, is again losing ground.

But the real blow comes from the United States: heavier tariffs on textiles and garments, which make up 80% of Cambodia’s exports. The World Bank projects real GDP growth of 4.8% in 2025, easing slightly to 4.3% in 2026. Respectable compared to neighbors like Vietnam (projected at 5.8%), but requiring vigilance.

Migration Crisis: Returning Workers Weigh on Rural Areas

The social picture is darkening. Hundreds of thousands of migrants are returning from Thailand, fleeing anti-immigration crackdowns and a recession across the border. These workers—often Khmer Krom—once sent home remittances worth USD 2.5 billion a year, or 10% of GDP. That flow is now drying up, even as agricultural prices (rice, cassava, rubber) are falling.

In rural areas, where 65% of the labor force remains in the informal or subsistence sectors, poverty looms large. The World Bank warns: without strengthened social safety nets—targeted allowances and rural microcredit—the poverty rate, stabilized around 17% in recent years, could rise alarmingly.

Solid Finances and FDI in Overdrive

Fortunately, Cambodia is not running empty. Inflation is subdued below 3%, thanks to the National Bank of Cambodia’s disciplined monetary policy and contained global oil prices. Public debt, at 36% of GDP, would make many emerging economies envious.

And foreign direct investment (FDI)? Up 25% in 2025, boosted by Chinese relocations in electronics, solar panels, and logistics. Giants like Foxconn and Qatari investment funds are betting on the Sihanoukville Special Economic Zone. These inflows strengthen the riel, attract confidence, and bring long-term optimism despite short-term turbulence.

The Informal Sector: The Sleeping Giant to Awaken

Eighty percent of Cambodian businesses—street shops, motorbike workshops, emerging digital services—operate off the books, escaping taxes and official statistics. Yet they employ a majority of urban workers.

The World Bank sees this as an untapped growth engine: formalize through digital training (coding, e-commerce), inclusive finance (fintech like Wing or ABA Pay), simplified regulation (one-stop business registration), and tech adoption (QR codes, delivery apps). Projected impact: +15% productivity in retail and services, along with higher tax revenues. A win-win for the state and small entrepreneurs alike.

Priority Reforms: Diversify Before the 2029 Leap

The countdown is on. In 2029, Cambodia will graduate from the Least Developed Country (LDC) category, losing access to trade preferences and aid schemes. To avoid the middle-income trap, Phnom Penh must accelerate reforms: adaptive social protection (conditional grants, unemployment insurance), SME support (green subsidies, incubators), high-tech logistics (modernized Sihanoukville port, rail corridors), and massive investment in training (vocational programs in AI and agri-tech).

These levers, inspired by Vietnam’s success, promise a more diversified, productive, and shock-resilient economy. From civil conflict to aspiring Asian tiger in three decades, the Kingdom has the backbone to meet the challenge—it now needs to make it count.