Cambodia Investment Review
Despite a robust first half in 2025, Cambodia braces for economic challenges in the second half due to external shocks, a sluggish property market, and muted credit growth.
Cambodia’s economy recorded solid growth in the first half of 2025, fueled by a rebound in exports and rising consumer activity. However, mounting external and domestic pressures are expected to significantly slow momentum heading into the second half of the year, according to a recent economic outlook from Mekong Strategic Capital (MSC).
Strong Export-Led Recovery in H1
The export sector rebounded sharply from its 2023 downturn, with MSC analysis showing export growth of 22% in the first five months of 2025—outpacing Vietnam’s 14% during the same period. The garment industry, a cornerstone of Cambodia’s manufacturing base, demonstrated particular strength, recovering from a steep contraction between late 2022 and 2023.
Reflecting this growth in H1 was a surge in VAT and excise tax collections, which rose 24% year-on-year in the four months to April, while vehicle imports—a proxy for discretionary spending—climbed 51% in the same period, pointing to improving domestic sentiment.
However, analysts at MSC warned the gains may be short-lived.
Trump Tariffs and Regional Tensions Cloud Outlook
The outlook for the second half of 2025 is significantly more uncertain. The imposition of U.S. tariffs under the Trump administration is expected to directly impact Cambodian exports and drag on global demand. With the U.S. accounting for nearly 40% of Cambodia’s exports, a slowdown in American economic activity is likely to weigh heavily on Cambodia’s growth trajectory.
Additional regional risks have emerged, notably an escalating border dispute with Thailand, which could further dent investor sentiment and cross-border trade flows.
The International Monetary Fund (IMF) has revised its cumulative GDP growth forecast for Cambodia between 2024 and 2029 downward— largely due to the return of trade barriers. The latest estimate reflects a nearly $5 billion gap in expected GDP by 2029 compared to earlier projections.
Property and Credit Markets Remain Weak
While exports and tax revenues improved, Cambodia’s property sector continues to struggle. Loan arrears rose by 117 basis points since December 2024, with approximately $10.1 billion in loans—equal to 17% of total outstanding credit—either in arrears or restructured. Many of these are secured by property, putting additional pressure on an already soft real estate market.
Credit growth remains near historic lows despite high levels of banking sector liquidity. Banks are reporting strong deposit growth and sufficient capital buffers, but subdued loan demand has created a mismatch between liquidity and credit activity.
MSC emphasized that the banking sector remains fundamentally sound, with provisioning expected to be able to cover worst-case requirements. Nonetheless, the property-linked financial vulnerabilities warrant close monitoring, especially if broader economic conditions deteriorate further.
Tourism Recovery Lags Behind
Tourism, another key pillar of Cambodia’s economy, remains underwhelming. While Phnom Penh’s air arrivals have nearly returned to pre-pandemic levels, Siem Reap—the gateway to Angkor Wat—continues to lag. Angkor Wat ticket sales in April 2025 were still 63% below pre-COVID levels.
Tourism officials and analysts attribute this underperformance to reputational issues and weak international perception, particularly among Chinese travelers, a key demographic for Cambodia’s tourism sector. Without targeted efforts to restore the country’s image, MSC warns the sector’s recovery may continue to disappoint.
Long-Term Prospects Still Bright
Despite short-term turbulence, the long-term outlook remains positive. Cambodia’s working-age population is projected to increase by 24% between 2021 and 2050—far outpacing regional neighbors such as Vietnam and Thailand, which are facing demographic declines. This demographic dividend positions Cambodia as a competitive destination for labor-intensive manufacturing and consumption-led growth.
Cambodia also retains significant fiscal space, with the present value of public debt-to-GDP ratio of just 18.8% and average interest rates on government debt at 1.17%, allowing ample room for future stimulus or infrastructure investment if required.
Final Forecast: Slower H2, But Resilient Fundamentals
MSC projects GDP growth of around 5% for 2025, slightly above the World Bank’s 4% forecast, bolstered by the strong first half performance. However, continued headwinds—including trade disruptions, weak tourism, and lackluster domestic credit—may keep economic momentum subdued into early 2026.
The medium-term trajectory remains dependent on how policymakers manage ongoing risks and whether Cambodia can successfully pivot towards higher-value industries, improved governance, and stronger regional positioning.
As the report concludes, “Demography is destiny”—and Cambodia’s youthful population and improving infrastructure still offer a compelling growth story, provided near-term challenges can be weathered.
