World Bank trims Cambodia’s GDP growth forecast to 4%

World Bank trims Cambodia’s GDP growth forecast to 4%

Synopsis: Revenue reforms can support a better business environment while generating fiscal space for critical investments in human capital and infrastructure.

Faced with global and domestic headwinds, Cambodia’s real growth is projected to decelerate to 4 percent in 2025 and 4.5 percent in 2026, said the World Bank Group’s June 2025 Cambodia Economic Update (CEU) prepared by a group of economists and researchers released yesterday.

Incidentally, the World Bank’s Global Economic Prospects report released in January 2025, had forecast Cambodia’s GDP growth at 5.5 percent for the current year and 2026 — up from an estimated 5.3 percent last year.

The CEU emphasised that Cambodia’s economic performance remains relatively robust but uneven.

“Amid softening external demand and high levels of uncertainty, especially related to trade policy, exports and FDI in the labour-intensive manufacturing export sector—particularly within the GTF industries— is expected to slow down.”

The update, produced biannually, provides up-to-date information on macroeconomic developments in Cambodia. It is distributed and discussed widely, including among Cambodian authorities, development partners, the private sector, think tanks, civil society organisations, and academia.

According to the CEU, steady export performance, particularly in garments and tourism, benefitted growth and job creation in manufacturing and services, which in turn improved consumer confidence and spending. However, “recent spikes in global uncertainty and trade policy shifts cast a shadow over future prospects in the export sector”.

The CEU said domestic investment continues to face significant challenges, primarily due to a prolonged downturn in the property sector and a tightening credit cycle. “This uneven economic performance in recent years has led to disparities in household welfare improvements across different income groups.”

“Despite easing, exports of goods—particularly garments, travel goods, footwear, and bicycles— to the US and EU markets remained strong, increasing by 11.6 percent year-on-year during the first quarter of 2025.

“In addition, services exports, primarily tourism, continued to expand, with international arrivals rising by 16.1 percent year-on-year during this period.

“However, despite this continued uptick in international arrivals, the number of international tourists (after excluding business visa holders and trans-frontier workers) still remained below 2019 levels.

“Manufacturing exports have boosted consumer confidence, reviving imports of nondurable and durable goods. Reflecting an uptick in private consumption, imports of foodstuffs and garments rose by 25.3 percent and 29.1 percent, while car and motorcycle imports surged by 79.1 percent and 19.0 percent in the first quarter of 2025.”

The CEU said the uneven economic recovery after COVID-19 has led to disparities in household welfare improvements. “While there is no recent data, between 2021 and 2023, household consumption per capita increased by eight percent overall, reflecting gradual economic gains.

“However, these benefits were unevenly distributed: the poorest quintile experienced a seven percent increase in consumption per capita, whereas the richest quintile saw a 10 percent rise.

“Disparities are partly due to stalled property construction, affecting small businesses and seasonal workers, including farmers who depend on construction and informal jobs during off-seasons.

The agricultural sector, crucial for rural employment and livelihoods, has experienced limited growth with an average annual real growth rate of only one percent from 2021 to 2024.”

“Economic diversification is critical for Cambodia to sustain growth and job creation amid uncertainty, especially by moving beyond its reliance on construction and garment exports and promoting higher value-added manufacturing and services” said World Bank Country Manager for Cambodia, Tania Meyer, in a statement issued yesterday.

“Revenue reforms can support a better business environment while generating fiscal space for critical investments in human capital and infrastructure”.

Speaking to Khmer Times, Seng Hon, a research fellow with the Centre for Economic Studies, Fudan University, said the middle-class in the country continue to reel under the shadows of economic plight caused by the pandemic and it would take a few more years to overcome the challenges mostly caused by accumulated debts.

“The post-pandemic economic recovery has been really slow for self-employed, low-income as well as middle-class individuals in the country.

“Their earning graph hit remarkably low during the pandemic, and all self-employed did incur debts during the time. Definitely, there has been a recovery. But the accumulated debt still haunts them and they are paying off them slowly.”

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