Conflict Cambodia - Thailand: A Deep Economic Weakening for the Kingdom

The recent resurgence of border tensions between Cambodia and Thailand, analyzed in an AMRO report published in November 2025, reveals the extent of short- and medium-term economic disruptions for Phnom Penh and its border provinces.

Under the direction of Chunyu Yang and with the collaboration of Kuchsa Dy and Vansopheaktra Odorm Tep, the study offers a detailed view of the macroeconomic effects of an old but still recurring conflict, shedding light on complex and lasting cross-border shock phenomena.

A geopolitical context weighing on the economy

For decades, the territorial dispute around the temple de Preah Vihear has been a thorn in bilateral relations. In 2025, armed hostilities occurred in two peaks: an initial skirmish in May followed by a series of clashes in July, leading to the closure of the main border posts. This climate of instability settles in a region where la thésaurisation des frontières represents a major obstacle to trade, tourism, and the free movement of labor.

The July ceasefire agreement, formalized during the ASEAN summit in October in Kuala Lumpur, has so far not allowed a lasting reopening of crossing points, maintaining a climate of political and social uncertainty. This situation not only weakens the confidence of economic actors but also generates cascading effects on macroeconomic indicators.

The crucial role of the border in the Cambodian economy

The common border of more than 800 km connects Cambodia to one of its major trade and economic partners, Thailand, especially as part of the corridor économique du Grand Mékong. This corridor allows the transfer of energy, consumer goods, agricultural products, and concentrates the mobility of a significant workforce. In 2024, Thailand accounted for 13.5% of Cambodian imports, notably in oil and foodstuffs, while exports to Thailand amounted to 3.2% of total exports.

The report highlights that 1.2 million Cambodian workers resided in Thailand in 2024, sending nearly 2 billion dollars in remittances, or 5.6% of Cambodian GDP, an essential contribution to maintaining domestic consumption and supporting vulnerable sectors. Moreover, Thailand is the origin of 30% of international visitors to Cambodia in 2025, with a tourism presence crucial for local economies, especially in border provinces.

Mechanisms of transmission of economic effects of the conflict

Border closures have directly affected trade exchanges, tourist flows, and the mobility of workers. The main identified transmission channels are:

• Migrant workers' remittances: With about 900,000 Cambodians having left Thailand during the conflict, a 37.5% drop in remittances is anticipated, heavily impacting domestic consumption and slowing growth by nearly 0.3 percentage points of GDP.

• Tourism: The drop in the number of Thai visitors, combined with international warnings, has caused a sharp setback for the tourism industry, worsened by concerns related to the country's security and reputation.

• International trade: Despite limited dependence on Thai imports, some key sectors such as oil, fruits, and vegetables experienced temporary shortages, partially covered by other suppliers, moderating the inflationary effect to a moderate level (around 2% annual inflation).

• Foreign direct investment: Political uncertainty and logistical disruptions have slowed some investment projects, particularly those linked to the "Thailand 1 strategy," where companies relocate their operations based on cross-border connectivity.

Projections and scenarios for 2026

AMRO presents three contrasting scenarios reflecting different possible horizons:

Scenario	Description	GDP Growth	Impact Highlights
Baseline (progressive normalization)	Ceasefire held, border reopening early 2026	5.0%	Resumption of migratory flows, tourism +10-15%, inflation controlled
Unfavorable (prolonged closure)	Partial restrictions maintained, persistent tensions	4.5% - 5.0%	Continuous drop in remittances, stagnant tourism, FDI decline
Severe (renewed hostilities)	Renewed armed conflicts, near total closure	3.5% - 4.5%	Remittances -30%, tourism -40%, inflation above 3%, FDI decline

This prospective framework serves as a key tool for decision-makers to calibrate appropriate economic responses and plan risk mitigation measures.

Recommendations for economic and social policy

The authors urge Cambodian authorities to implement several priority strategies:

• Focus on social protection: Targeted cash transfers, debt restructuring for households dependent on remittances, and development of suitable safety nets.

• Professional reintegration program: Develop and align technical and vocational training through TVET to absorb repatriated workers, targeting high-growth sectors.

• Restoring tourist confidence: Actively combat online fraud, reassure visitors through campaigns, and strengthen security while improving tourism infrastructure.

• Diversification of trade routes: Strengthen port infrastructure like Sihanoukville, and develop alternative corridors via Vietnam to reduce dependency on the Thai land border.

• Rigorous budget management: Although the situation requires increased social spending, maintaining fiscal discipline is crucial to preserve investor confidence and stabilize markets.

The AMRO report led by Chunyu Yang and collaborators offers a nuanced analysis highlighting how border tensions, although episodic, can have profound and multiple consequences on the Cambodian economy. Between trade dependencies, migratory flows, and tourism, the impact translates into a noticeable slowdown in growth, moderate inflationary pressures, and an uncertain climate weighing on investment.

Cambodia's ability to navigate these challenges depends on the rapid implementation of targeted social policies, support for local economic resilience, and diplomatic efforts for durable normalization of relations with Thailand. Facing these issues, this AMRO analytical work remains a major reference for informing decisions and preparing the Cambodian economy for an uncertain but potentially rebound future.

Analytical-Note-Assessment-of-the-Impact-of-Cambodia-Thailand-Border-Conflicts-on-Cambodia.

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