Cambodia’s GDP set to slow to 4.8%, IMF warns

Cambodia’s GDP set to slow to 4.8%, IMF warns

A confluence of shocks in the second half of 2025 has exposed Cambodia’s underlying fragilities. Trade disruptions, heightened border tensions and sluggish credit growth have weighed heavily on investment sentiment and household spending.

Cambodia’s economic momentum is expected to weaken over the next two years, with growth projected to slow to 4.8 percent in 2025 and further down to 4.0 percent in 2026, according to the International Monetary Fund (IMF). The outlook marks a sharp deceleration from the stronger performance seen in 2024 and early 2025, signalling rising challenges for the Kingdom’s economy amid global uncertainty and domestic vulnerabilities.

The projections were released following the conclusion of the IMF Executive Board’s 2025 Article IV Consultation with Cambodia on Wednesday, after the Board met on November 21, 2025, in Washington, DC. With the authorities consenting to the publication of the Staff Report, the findings indicate that Cambodia is entering a more uncertain phase, shaped by weakening domestic demand, volatile exports and increasing financial sector risks.

Cambodia’s economy expanded by 6.0 percent in 2024, supported by a pronounced rebound in garment and agricultural exports, together with the continued recovery of the tourism sector. IMF nowcasting estimates suggest year-on-year growth of 6.2 percent in the first half of 2025, driven by robust export orders and resilient service activity.

However, IMF noted that a confluence of shocks in the second half of 2025 has exposed underlying fragilities. Trade disruptions, heightened border tensions and sluggish credit growth have weighed heavily on investment sentiment and household spending. Early indicators, the IMF warned, show that economic activity has begun to cool more sharply than anticipated.

The downward revision from the 2024 Article IV forecast is primarily attributed to declining remittances and a softening tourism sector. Both factors are expected to erode domestic consumption, while tariff effects and margin pressures will likely reduce export earnings for manufacturers. The IMF also highlighted “anemic” domestic credit growth as a sign of weakening confidence in the real economy.

Inflation is projected to rise modestly in 2025, driven by imported price pressures, before easing again in 2026. While inflation remains manageable, the IMF cautioned that the overall balance of risks is “tilted to the downside”, with financial sector vulnerabilities at the centre.

The IMF identified three major risk areas. First, renewed trade policy uncertainty could disrupt export growth, particularly in garments and footwear, which continue to dominate Cambodia’s export base. Second, intensified border tensions could suppress tourism flows and undermine investor confidence. Third, elevated private debt and rising non-performing loans (NPLs) could magnify stress within the financial system.

The IMF warned that high private indebtedness, particularly in the real estate sector, increases the risk of a sharper slowdown should credit conditions tighten further. Governance vulnerabilities were also cited as a factor that could amplify instability if not addressed decisively.

Despite these concerns, the IMF noted potential upside prospects, including deeper regional trade and investment integration. The successful reintegration of returning migrant workers into the domestic labour market could also provide a lift to local consumption and employment.

In their assessment, Executive Directors agreed that Cambodia’s recovery remains uneven and increasingly fragile. They stressed that the country’s reliance on a narrow export base makes it susceptible to external shocks, underscoring the need for a coordinated and comprehensive policy response.

Directors urged the authorities to prioritise fiscal measures that cushion the impact of current shocks while maintaining prudence. Targeted, temporary support for vulnerable households and displaced workers was identified as essential, accompanied by active labour market programmes to help mitigate job losses. Over the medium term, gradual and growth-friendly fiscal consolidation will be required to rebuild buffers and preserve long-term sustainability.

On monetary policy, Directors advised maintaining agility and restoring reserve requirements to pre-pandemic levels in a gradual manner. Continued efforts to strengthen monetary transmission in Khmer Riel and improve liquidity management were welcomed, alongside the modernisation of policy tools and transparent communication to strengthen credibility.

Financial sector reforms were described as urgent. Directors supported the phase-out of forbearance measures by end-2025 to enable timely recognition of distressed assets. Strengthened supervision, enhanced stress testing, improved asset quality reporting and the development of insolvency and crisis management frameworks were all highlighted as pressing priorities. The establishment of a deposit insurance scheme and further action to address AML/CFT vulnerabilities were also encouraged.

Looking beyond immediate risks, the IMF emphasised the need to accelerate structural reforms aimed at diversifying exports, boosting productivity and enhancing competitiveness. Governance reforms were deemed essential to bolstering investor confidence, improving the business environment and ensuring sustainable and inclusive development.

As Cambodia navigates a period of heightened uncertainty, the message from the IMF is clear: prudent fiscal and monetary policies, combined with structural reforms, will be critical to safeguarding stability and strengthening resilience. The coming two years, the IMF suggests, will test the economy’s ability to weather external shocks while laying the groundwork for a more competitive and diversified future.

Economist Darin Duch told Khmer Times that while Cambodia has experienced strong economic performance in recent years, external factors are creating headwinds for the country’s growth outlook.

“To start with, the projection of GDP growth in Cambodia in 2025 and in 2026 may point to external headwinds. The global major markets are less buying and regional tourism recovery is lopsided due to global economic slowdown and uncertainties,” he said.

Darin highlighted that Cambodia can maintain short-term growth stability by continuing its prudent fiscal and monetary policies. He emphasised the importance of targeted support for vulnerable households and small and medium-sized enterprises (SMEs), as well as the rapid disbursement of public investment, particularly in transport, irrigation, and digital infrastructure.

“Maintaining price stability should also be conducive to stimulating aggregate demand. Monetary adjustments that ensure credit continues to flow to productive sectors of the economy can also stimulate economic growth,” he added.

The economist also underlined the role of the financial sector in supporting sustainable growth. “Relevant authorities should continue to improve their risk-based supervision and promote responsible lending while building up options for capital buffers,” Darin said.

Looking further ahead, structural reforms could strengthen Cambodia’s economic resilience. “Supporting value-added manufacturing, green energy, modernising agriculture, and digital skills can help develop our economy through diversification,” Darin noted.

However, the Ministry of Economy and Finance expects the Cambodian economy to grow by 5.2 percent in 2025, driven by robust export activity, strong domestic consumption, and an increasing emphasis on supporting local products. Looking ahead, growth in 2026 is projected at 5 percent.

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