ADB pegs Cambodia’s growth at nearly 5 percent for FY2025

ADB pegs Cambodia’s growth at nearly 5 percent for FY2025

Even as Cambodia faces external pressures, analysts say the country’s strong fundamentals, prudent fiscal policy, and structural reforms could help it navigate near-term shocks and maintain steady growth.

The Asian Development Bank (ADB) has revised Cambodia’s growth outlook for 2025 and 2026, citing geopolitical tensions with Thailand and uncertainties surrounding the United States (US) export market. Despite the adjustments, the bank said Cambodia’s economy remains resilient and is expected to sustain nearly 5 percent growth in the coming year.

In its flagship Asian Development Outlook (ADO) September 2025 report, released yesterday, the ADB lowered its GDP growth forecast for 2025 to 4.9 percent, down from a previous estimate of 6.1 percent (in April 2025 report). The projection for 2026 was also reduced to 5.0 percent, from an earlier forecast of 6.2 percent. The revisions reflect challenges from border frictions with Thailand, ongoing uncertainties in the US export market, and softer tourism inflows.

“The economy has shown resilience in the first half of 2025,” said Jyotsana Varma, ADB Country Director for Cambodia. “Lower-than-expected food price increases and declining fuel costs helped ease inflation, while industrial activity remained robust. Looking ahead, there is scope for continued recovery in construction and tourism sectors, alongside steady growth in agriculture, which together point to a more balanced and sustainable expansion.”

The report highlighted that inflation eased significantly from 6.0 percent in January to 1.6 percent in June, due to falling food and fuel prices. Inflation is projected to average around 2.0 percent in both 2025 and 2026, providing relief to households and businesses alike.

Industry remains the main engine of growth. Garment exports surged 22.2 percent year-on-year in the first half of 2025, driven in part by US buyers frontloading orders ahead of potential tariff increases. While uncertainty remains among importers due to trade policy risks, Cambodia’s manufacturing sector is expected to hold steady under the current 19 percent US tariff rate.

The services sector, by contrast, is projected to slow, with growth forecast at 2.8 percent in 2025 and 2.6 percent in 2026. Tourism continued to recover in the first half of the year, supported by increased arrivals from China, but ongoing border tensions with Thailand are likely to weigh on visitor numbers and broader service activities in the second half of 2025 and beyond.

Agriculture is expected to expand by 1.1 percent annually in both 2025 and 2026. Export demand has remained solid, with agricultural exports rising 14.1 percent year-on-year in the first half of the year. Shipments of cashew nuts and milled rice helped offset declines in cassava and rubber. The report also noted that the return of Cambodian agricultural labourers from Thailand later in the year is expected to support production.

Experts have noted that while Cambodia faces external shocks, domestic economic fundamentals remain sound.

Thong Mengdavid, lecturer at the Institute for International Studies and Public Policy at the Royal University of Phnom Penh, told Khmer Times that Cambodia’s resilience depends on several factors, including industrial competitiveness, macroeconomic stability, skilled labour, and export diversification.

“Despite border tensions with Thailand, Cambodia’s domestic politics and economy remain stable,” Mengdavid said. “External shocks like US tariffs pose risks, especially with heavy reliance on garments, but strong domestic policies can cushion impacts.”

He added that maintaining prudent fiscal management, ensuring debt sustainability, and providing targeted support to key sectors are crucial to sustaining recovery. Priority areas include upgrading high-value tourism and recreational facilities, expanding agro-processing and rural infrastructure, and modernising logistics networks.

Mengdavid also emphasised the importance of strengthening technical and vocational education and training (TVET) programs and establishing portable social protection measures to enhance long-term resilience. He said Cambodia could attract higher-quality foreign investment by streamlining business licensing procedures, improving contract enforcement, and tackling bureaucratic delays and corruption.

“Promoting energy efficiency, expanding renewable energy, and climate-proofing agriculture and infrastructure will help the country manage risks and support long-term growth,” Mengdavid said.

From the private sector perspective, Arnaud Darc, Chairman and CEO of Thalias and Co-Chair of the Government-Private Sector Forum (Working Group D), told Khmer Times earlier that Cambodia is navigating a transition period.

“Growth this year is projected around 4 to 5 percent, down from 6 percent last year, with pressures from tariffs, rising private debt, and the Thailand border disruption. Yet the fundamentals remain sound: public debt is only about 26 percent of GDP, reserves cover seven months of imports, and tourism and FDI are recovering even if unevenly,” Darc said.

He noted that fiscal support should be precise and temporary. “The right approach is to use the IDPoor registry for targeted cash transfers in provinces most affected by the border closure, while expanding small public works that create immediate jobs. At the same time, Cambodia must keep its deficit near 3 percent and rebuild buffers by tightening tax compliance, rationalising exemptions, and gradually broadening the tax base.”

Darc also warned of financial sector risks. “Reported non-performing loans already exceed 7 percent. In the next 12-18 months, priorities include enforcing time-bound recognition and provisioning, establishing a functional bank resolution and deposit insurance framework, and tightening lending standards in real estate. Transparency in credit reporting and consumer protection will help reduce household debt stress.”

He emphasised that long-term growth will require stronger institutions and human capital. “Sustaining growth means predictable rules, faster decisions, and a capable workforce. Customs and licensing should be streamlined through a genuine single window. Cambodia should also accelerate its digital economy — fintech, e-commerce, and digital payments — to boost competitiveness and inclusion.”

Investment in skills, Darc added, is vital. Expanding vocational training linked to employer demand, raising the quality of STEM and secondary education, and strengthening digital and English skills will help Cambodia’s workforce adapt to changing markets. Supporting SMEs with access to finance will create jobs and improve resilience.

“Over the next two years, Cambodia should leverage ASEAN and RCEP integration to diversify markets and position itself for green growth and climate-resilient investment — through renewable energy, sustainable agriculture, and eco-tourism, which international partners increasingly prioritise. These are practical steps that combine short-term stability with long-term competitiveness,” he said.

As Cambodia faces external pressures, analysts say the country’s strong fundamentals, prudent fiscal policy, and structural reforms could help it navigate near-term shocks and maintain steady growth.

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