Cambodia Investment Review
Cambodia’s economy expanded by 6.0% in 2024—up from 5.0% in the previous year—fueled by a rebound in its key garment exports. However, growth is expected to lose momentum in 2025, decelerating to 4.9% as newly imposed US tariffs weigh heavily on the country’s export-dependent economy, according to a preliminary report from the ASEAN+3 Macroeconomic Research Office (AMRO).
The findings follow AMRO’s annual consultation visit to Cambodia from April 21–30, 2025, with discussions led by Principal Economist Dr. Jinho Choi. Senior officials including AMRO Director Kouqing Li and Chief Economist Hoe Ee Khor engaged with Cambodian counterparts on the economic outlook and policy response.
Export Dependence Poses Risks
The downgrade in Cambodia’s 2025 growth forecast reflects the country’s high exposure to external trade shocks, especially its reliance on the US market for garment and footwear exports. AMRO projects growth to slow further to 4.7% in 2026 if the tariff situation persists.
Read More: Opinion: US Tariffs – Cambodia’s Path To Resilience
“Due to the sharp rise in tariffs on its goods exported to the US, Cambodia’s economic growth is expected to decelerate,” Dr. Choi said. “However, the economy remains resilient, and the government should take targeted measures to support the economy, especially the affected sectors.”
While Cambodia saw a strong recovery in 2024, the current account surplus narrowed to just 0.5% of GDP due to a wider trade deficit. The balance is expected to move into a deficit of 3.6% of GDP in 2025 and 5.5% by 2026. Meanwhile, foreign direct investment inflows are forecast to decline modestly in 2025 amid investor caution, before rebounding in 2026.
Inflation and Fiscal Pressures Mount
Inflation has also become a growing concern. After averaging just 0.8% in 2024, largely due to food price volatility, consumer prices spiked in early 2025. AMRO now expects full-year inflation to reach 2.7%, moderating to 2.2% in 2026—back toward pre-pandemic levels.
On the fiscal front, government revenues in 2024 fell significantly short of budget expectations due to weak tax collection. While expenditure cuts helped reduce the fiscal deficit from 3.9% of GDP in 2023 to 2.1% in 2024, AMRO cautioned that restoring fiscal space remains a medium-term priority.
Real Estate and Credit Growth Remain Subdued
Cambodia’s real estate sector continued to struggle in 2024, remaining in the early stages of recovery. Credit growth across the economy remained weak at just 3% despite strong deposit inflows and ample liquidity in the banking system.
However, AMRO flagged mounting vulnerabilities in the financial sector. A continued rise in non-performing loans, particularly among real estate developers, could threaten bank profitability and broader financial stability.
“Domestically, subdued credit growth and the increasing NPL ratio are concerning. If left unaddressed, these could erode confidence in the banking sector,” the report warned.
Policy Recommendations for Resilience and Reform
To strengthen Cambodia’s resilience against global trade tensions, AMRO is urging a comprehensive and coordinated policy response.
In the short term, targeted fiscal support, combined with a flexible and accommodative monetary stance, could help cushion the economic impact. However, any regulatory forbearance—such as leniency on NPL classifications—should remain temporary to avoid long-term risks.
Cambodia’s central bank, the National Bank of Cambodia, was advised to continue promoting liquidity and financial stability while strengthening macroprudential oversight. AMRO also called for the swift implementation of key financial safety nets, including a deposit insurance system and a banking resolution framework.
Over the medium term, policymakers are encouraged to push ahead with structural reforms that enhance competitiveness and reduce the country’s dependence on a narrow export base. This includes advancing the government’s new revenue mobilization strategy, improving public spending efficiency, and investing in high-value sectors.
“Realizing Cambodia’s vision of sustainable and inclusive growth requires concrete and well-implemented reforms,” AMRO said. “Now is the time to diversify the economy and safeguard against future shocks.”
Cambodia is also preparing for its expected graduation from Least Developed Country status in 2029—a shift that could increase borrowing costs and reduce trade preferences unless carefully managed.
