Cambodia’s industrial sector forecast to expand 7.1% in 2026

Cambodia’s industrial sector forecast to expand 7.1% in 2026

While several industrial components are growing more moderately than anticipated, the sector as a whole maintains positive trends that will underpin its medium-term outlook.

Cambodia’s industrial sector is expected to grow by 7.1 percent in 2026, marking a slower pace than in 2025 (7.8 percent) but still reflecting underlying resilience across key sub-sectors despite global economic uncertainty and the continued impact of reciprocal tariff measures on Cambodian exports.

The forecast is outlined in the Ministry of Economy and Finance’s Supporting Documents for the Preparation of the draft Law on Finance for Management 2026, released on Wednesday, which also project an average industrial growth rate of 7.4 percent over the medium term from 2026 to 2028.

According to the document, the industrial sector’s gradual slowdown is primarily linked to weaker performance in the garment and non-garment manufacturing segments, both of which continue to face external headwinds ranging from tariff-related pressures to subdued demand in major markets. However, supporting sub-sectors—particularly food and beverage manufacturing and construction activities tied to industrial development— are expected to help sustain overall sectoral momentum.

The report noted that while several industrial components are growing more moderately than anticipated, the sector as a whole maintains “positive trends” that will underpin its medium-term outlook.

“However, supporting sub-sectors continue to maintain positive trends, supporting the overall industrial sector in the medium term, albeit at a slower pace than expected,” the ministry stated.

The garment sector, which remains one of Cambodia’s flagship industries, is projected to continue expanding, though still below its pre-pandemic growth trajectory. The report attributes this slower but ongoing recovery to stable demand from the European Union and ASEAN markets, even as exports to the United States may underperform. At the same time, ongoing reforms and strategies being implemented domestically are expected to improve competitiveness, efficiency and value addition.

“In this regard, the garment sector continues to grow, albeit at a lower level than before the Covid-19 crisis, supported by the continued positive trend in Cambodia’s export markets (demand side) such as the European Union and ASEAN, although exports to the US market may not be as good as expected,” the document stated.

It added that the strengthening implementation of the “Cambodia Garment, Footwear and Bag Industry Development Strategy 2022–2027” is contributing to improved investment conditions and higher sector-wide productivity.

Looking ahead, the ministry emphasised the significance of preparing a “Smooth Transition Strategy” for Cambodia’s future graduation from Least Developed Country (LDC) status. This approach, the report highlighted, will be crucial to reinforcing the garment value chain, especially as the industry faces heightened regional competition and evolving market requirements driven by double transformation conditions associated with LDC exit.

Beyond garments, the non-garment manufacturing sub-sector is also expected to experience a slowdown in 2026, but the ministry anticipates steady future growth supported by exports of key industrial products, shifts in global production chains and continued expansion of industries serving the domestic market.

“The non-garment manufacturing sub-sector, despite a slowdown in 2026, is expected to continue to grow steadily in the future, driven by exports of key strategic industrial products, coupled with the trend of changing production chains, while domestic market-serving industries continue to perform well,” the report noted.

Meanwhile, food and beverage manufacturing remains one of the strongest contributors to industrial growth. Continued investment, expanding production activities and rising domestic consumption are reinforcing the sub-sector’s upward trend.

The report emphasised that investment incentives embedded in the Investment Law of the Kingdom of Cambodia, alongside the ongoing implementation of the National Strategy on Informal Economic Development 2023-2028 and SME support mechanisms, are playing a pivotal role in attracting foreign investors and strengthening the small and medium-sized enterprise ecosystem.

“It is worth noting that the incentive framework… and other policy measures and mechanisms to support SMEs will play a significant role in attracting foreign investment and promoting the development of the SMEs ecosystem, which are key drivers in driving the growth of this sub-sector in the medium and long term,” the ministry stated.

In addition, Cambodia’s push for industrial diversification is being supported by major policy frameworks, including the “Framework for the Development of Agro-Industrial Parks in Cambodia” and the “Special Programme to Promote Investment in the Four Northeastern Provinces 2025-2028” (SPIN), which are expected to reinforce the foundations of the industrial sector while enhancing the non-garment manufacturing value chain.

The construction sub-sector is also continuing its recovery, though at a slower pace and still below pre-COVID-19 levels. Growth is being supported by real demand for housing and a steady rise in construction tied to industrial expansion, particularly factories and warehouses — an emerging trend that the ministry believes will contribute to short- and medium-term sectoral stability.

Ongoing government intervention measures are expected to help stabilise real estate activity and support the broader construction environment.

“In particular, the construction sub-sector continues to recover, but at a slow pace… coupled with the continued upward trend in construction activities serving the industrial sector, such as factories and warehouses,” the report said, adding that continued monitoring of government measures will support stability in the real estate market.

Despite challenges, the ministry’s medium-term outlook signals cautious optimism, driven by diversification efforts, targeted policies and gradual recovery across several core sub-sectors. The projected 7.1 percent growth in 2026 underscores both the fragility and resilience of Cambodia’s industrial economy as it navigates a transforming global trade landscape.

Speaking to Khmer Times, Lor Vichet, Vice President of the Cambodia Chinese Commerce Association (CCCA), said the easing of industrial growth underscores Cambodia’s substantial reliance on exports, which in turn leaves the economy exposed to external pressures.

“The slowdown in industrial growth to 7.1 percent shows how dependent we still are on exports, and this is reflected in the recent drop in export performance,” he said. “When an economy depends more on foreign demand than domestic consumption, it inevitably faces certain vulnerabilities that require close attention and timely intervention.”

Vichet noted that Cambodian exports to the United States are currently subject to an effective tariff rate of around 19 percent. “It is a rate that remains manageable for us for now,” he said.

To improve Cambodia’s competitiveness, he urged the government to streamline business licensing procedures. “The licensing process—including application fees and the duration of review and approval—should be adjusted to reduce waiting times. Faster processing would significantly enhance Cambodia’s attractiveness,” he said.

He also emphasised the importance of reducing over-reliance on the US market, which accounts for about 40 percent of Cambodia’s exports. Strengthening and expanding the remaining 60 percent, he stressed, is essential to safeguarding an export-driven economy from sudden disruptions.

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