Cambodia’s economy has experienced significant fluctuations in recent years, reflecting the complexities of global trade, domestic demand, and structural economic changes. Despite a reported GDP growth of 5%, deeper analysis reveals an uneven recovery, with key sectors facing challenges and others showing unexpected resilience.
A notable contributor to Cambodia’s reported GDP growth was non-garment manufacturing, accounting for 2.1% of the total. However, given the collapse in domestic demand, this contribution should be primarily reflected in exports. A review of trade data reveals that solar and diode exports surged by $1.13 billion in 2023, making up more than 100% of the growth in non-garment manufacturing. This suggests that the sector’s expansion was almost entirely driven by this singular category.
Interestingly, there is no widely recognized large-scale, value-added solar panel manufacturing capability in Cambodia that could justify such numbers, though it cannot be entirely ruled out. By 2024, however, solar and diode exports fell by over $1.2 billion. Despite this decline, the broader economy has not shown a significant downturn, suggesting that other factors are at play in sustaining growth.
Cambodia’s export sector remained weak in 2023, especially following the sharp contraction in garment exports that began in the latter half of 2022 and persisted throughout 2023. However, 2024 has seen an impressive rebound in exports. To contextualize this recovery, Cambodia’s export growth (25% in 2024) outperformed Vietnam’s 14% growth in the same period.
VAT and excise tax collections provide a valuable lens into economic activity. The collapse of these collections in 2023 signaled a recessionary environment, with a sharp decline in consumer spending. However, signs of improvement emerged in 2024, with October’s consumption tax revenues rising by 33% compared to October 2023. This suggests a strong economic momentum in the second half of 2024.
Vehicle imports, often used as a proxy for discretionary spending, also indicate a recovery. The significant decline in consumer demand from late 2022 appears to be reversing, albeit gradually.
In terms of tourism, while Cambodia’s tourism sector is showing some improvement, caution is necessary when interpreting statistics. Visitors from Thailand, Vietnam, and Laos make up approximately 60% of total arrivals but only account for 5% of visits to Angkor Wat, indicating that not all arrivals contribute significantly to the tourism economy.
Phnom Penh airport exceeded pre-COVID levels for the first time in October 2024, albeit by just 1%. Siem Reap’s airport, however, remains below pre-pandemic levels, down 59% in October but improving to a 44% deficit in November. Air arrivals, a better measure of genuine tourist inflows, remain below pre-COVID levels but are on a positive trajectory. Nevertheless, Cambodia’s tourism industry continues to suffer from reputational challenges, impacting its full recovery.
Furthermore, the real estate market faces structural imbalances dictated by the immutable laws of supply and demand. Currently, the sector is experiencing significant oversupply (Point X). To reach equilibrium (Point C), both prices and transaction volumes need to decline considerably. However, a large volume of unsold properties remains in the market, creating “latent” supply pressure.
Loan arrears have risen, driven by declining incomes. Since September 2024, loan restructurings have averaged $0.5 billion per month. As of now, $8.3 billion—approximately 14% of all loans—are either in arrears or have been restructured, affecting roughly 1 in 7 borrowers. Many of these loans are secured by property, necessitating widespread property sales to resolve bank non-performing loans (NPLs). This dynamic effectively shifts the supply curve rightward, leading to further downward pressure on property prices.
As Cambodia enters 2025, the economic landscape is marked by both strong momentum and a high level of uncertainty. While the country has demonstrated resilience and growth in recent years, several key factors—both domestic and international—will shape its trajectory. The interplay of export trends, tourism recovery, domestic demand, infrastructure investment, and global economic conditions will determine the pace and sustainability of Cambodia’s economic expansion.
In terms of economic trends in Cambodia, its economy carries significant momentum into 2025, with domestic demand emerging as a primary driver of growth. After a robust export performance in 2024, the growth rate in this sector is expected to moderate. While exports have been a cornerstone of Cambodia’s economic success, external pressures, such as weakening global demand and shifting trade policies, may slow their expansion.
Tourism, another key pillar of the Cambodian economy, continues its gradual recovery but remains below pre-pandemic levels. The sector’s full return to 2019 figures is still uncertain, but increasing international arrivals and ongoing efforts to enhance the country’s tourism infrastructure provide optimism.
On the domestic front, consumption and investment are expected to rise, contributing to economic stability. However, the property market remains weak, with sluggish demand and oversupply in key segments. Banks, while experiencing slightly improved loan growth, remain cautious due to global financial instability and domestic economic uncertainty.
Despite these challenges, Cambodia’s infrastructure development remains a major positive. Government and private sector investments in roads, energy, and digital infrastructure will support long-term economic growth, improving connectivity and creating new business opportunities.
One of the most significant external factors influencing Cambodia’s economy in 2025 will be U.S. trade policies, particularly those related to tariffs on Chinese goods. If former U.S. President Donald Trump returns to office and reinstates or expands tariffs, the global trade environment could shift dramatically.
Historically, tariffs have had unintended consequences, as seen in the British Corn Laws, the U.S. Smoot-Hawley Act, and other protectionist measures that ultimately harmed the economies implementing them. Trump’s focus on China—and potentially Vietnam—could accelerate the ongoing trend of manufacturing relocation to Cambodia. This shift presents an opportunity for Cambodia to further integrate into global supply chains, particularly in textiles, electronics, and assembly industries.
However, there are potential downsides. If the U.S. government expands tariff measures to include goods produced by Chinese companies operating in third countries, Cambodia may face trade restrictions. Proposals in the U.S. Congress to modify the rules of origin or limit preferential duty treatment for products with Chinese content could impact Cambodia’s ability to benefit from these shifts in manufacturing. While the country has a growing industrial base, its dependence on Chinese investment and supply chains could expose it to new trade risks.
For businesses operating in Cambodia, both the short-term and long-term outlooks present unique challenges and opportunities.
In the long run, Cambodia remains a high-growth economy with substantial potential, particularly in manufacturing. While agriculture remains important, it is unlikely to be a major driver of future expansion. Instead, the country’s industrial sector will continue to attract investment, benefiting from regional trade shifts and infrastructure improvements.
In the short term, businesses must adopt a cautious and flexible approach. Given the uncertainty in global markets, liquidity is essential—“cash is king,” and companies that can generate stable cash flow will be better positioned to navigate economic fluctuations. Agility in operations, cost management, and strategic investments will be critical for success. Reducing operational leverage and maintaining financial flexibility will help businesses withstand potential shocks.
Additionally, banks are offering attractive financing options, providing opportunities for businesses to secure favorable terms on loans and investments. Companies that can leverage these financial tools while managing risk effectively will have a competitive edge in 2025.
The insights of this article have been taken from the Economic Snapshot and Outlook 2025 report, of MEKONG strategic capital (www.mekongstrategic.com).