Cambodia’s economic fundamentals remain firm amid border crisis, study says

Cambodia’s economic fundamentals remain firm amid border crisis, study says

Taking several key factors into account, AMRO revises Cambodia’s 2025 growth forecast slightly from 5.2% to 4.9%. Given the fact that the Kingdom has absorbed a significant geopolitical shock without derailing its broader economic trajectory, AMRO’s tone is by and large reassuring: Cambodia’s economy is bending, not breaking.

Cambodia’s economy is unlikely to suffer major damage from the ongoing tensions along the Thai border, despite the dramatic return of migrant workers and the closure of key checkpoints, according to a new assessment from the ASEAN+3 Macroeconomic Research Office (AMRO).

The report, released earlier this week, argues that although the political and security situation remains sensitive, the economic fallout is more contained than many initially feared. The conflict, AMRO says, is local in scope and short in duration, and most of Cambodia’s economic fundamentals have proven resilient in the face of disruption.

Trade is one example. When Thailand tightened controls and Cambodia responded with bans on certain imports, there was concern that food supplies and fuel deliveries might be strained. But the impact never escalated to crisis levels. Cambodian traders quickly shifted to suppliers in Vietnam, China and elsewhere, allowing the market to stabilise with minimal turbulence. Prices edged up in some categories, but annual inflation stayed within a comfortable 1.7 to 1.9 percent range, well below what one might expect during a regional stand-off.

The same pattern of resilience appears in the energy and telecommunications sectors. Cambodia briefly halted electricity and internet imports from Thailand in mid-June, yet there were no widespread outages. The grid leaned more heavily on supply from Vietnam and Laos, while telecom operators rerouted bandwidth through other fibre networks. Daily economic activity continued largely undisturbed.

Foreign investment, another area many analysts watched closely, has also held firm. Cambodia currently ranks first in the 2025 Greenfield FDI Performance Index, and AMRO notes that several multinational firms have continued to expand operations even as border tensions simmer. Thailand’s share of total foreign investment in Cambodia is relatively small – about 3.3 percent – making the sector less vulnerable than some feared. Japanese electronics manufacturer Minebea Mitsumi, for instance, is moving ahead with its fourth factory despite the uncertainty.

The return of an estimated 900,000 migrant workers from Thailand remains the most visible shock to the economy, particularly for households reliant on remittances. But even here, AMRO emphasises that the impact, though painful, does not threaten broader economic stability. The government rolled out a range of support measures within days of the first large wave of returnees, including reception centres, job-placement efforts, and expanded vocational training. Several large employers have already begun taking in returning workers, helping soften the blow to household finances.

Tourism has been more directly affected, with Thai arrivals dropping sharply after tensions escalated and a handful of countries issued travel advisories. Yet Cambodia’s tourism industry is no longer as dependent on a single source market as it once was. Visitors from China, Vietnam, and regional neighbours continue to provide steady traffic, while domestic tourism has helped sustain hotels and service providers during the quieter months.

Taking all of these developments into account, AMRO revised Cambodia’s 2025 growth forecast only slightly – from 5.2 percent to 4.9 percent. The downgrade is modest, and the organisation’s baseline scenario still expects growth to inch up to around 5 percent next year, assuming the ceasefire continues to hold and border activities gradually resume.

The report acknowledges that risks remain. A prolonged closure of the border could slow recovery in tourism and labour mobility, while any renewed clashes would place additional pressure on consumption and investor sentiment. But for now, AMRO’s tone is largely reassuring: Cambodia’s economy is bending, not breaking.

In effect, the Kingdom has absorbed a significant geopolitical shock without derailing its broader economic trajectory. That, AMRO suggests, is a sign of a more diversified and adaptable economy, one that can withstand regional turbulence better than in years past.

Cambodia has demonstrated remarkable economic resilience despite recent border tensions with Thailand, though experts caution that some sectors remain vulnerable, according to a senior academic.

Thong Mengdavid, lecturer at the Institute for International Studies and Public Policy at the Royal University of Phnom Penh, told Khmer Times that the country has so far managed to maintain stability.

“Cambodia has shown that it can stay steady even when hit by sudden geopolitical shocks. The essentials such as trade, energy, and investment haven’t been derailed, thanks to stronger fundamentals and quick government support, as well as diversified economic partners without relying on a single source of trade or investment,” he said.

However, Mengdavid stressed that these measures are largely short-term. “If tensions last, the economic pressure will start to build, and the government needs to come up with sustainable and resilience policies to mitigate tensions and economic issues,” he added.

He highlighted tourism and remittances as particularly sensitive areas. “Many Cambodians working in Thailand have returned home, which means remittances could fall and household spending will weaken. The government needs to prioritise migration worker policies that focus on other countries, such as Japan or South Korea, or elsewhere,” Mengdavid explained.

Tourism, he noted, is also vulnerable to travel advisories and negative publicity. “If the border situation doesn’t improve, these two areas could drag down growth more than trade disruptions ever would,” he said.

To address these challenges, Mengdavid urged continued support for affected workers alongside long-term policy measures. “The government should push harder on diversified transport routes, stronger tourism promotion and safety efforts, and better training to help returnees find decent jobs at home. Clear communication with investors and continued social protection will go a long way in helping Cambodia weather any future regional turbulence.”

Cambodia’s economy is projected to grow by around 5.2 percent in 2025, underpinned by export-oriented services, robust domestic consumption, and a rising preference for locally made products, Deputy Prime Minister and Minister of Economy and Finance Aun Pornmoniroth said recently.

Speaking at a workshop on the macroeconomic and public financial policy framework for the draft Law on Financial Management for 2026 at the National Assembly Palace, Pornmoniroth highlighted that the global, regional, and domestic economic outlooks face heightened risks, necessitating continuous monitoring and timely policy adjustments.

He noted that growth varies across sectors, with some outperforming expectations while others are affected by US tariffs and the ongoing Cambodia-Thailand border closure. Looking ahead, the economy is forecast to expand by around 5 percent in 2026, slightly below this year’s growth, reflecting continued external pressures.

“Overall, Cambodia maintains solid momentum,” he emphasised.

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