World Bank Sees Cambodia Growth Slowing to 4.8% in 2025 Amid Domestic, External Shocks

The World Bank stresses that improving the business environment, supporting informal enterprises, and strengthening climate and economic resilience will be central to Cambodia’s long-term recovery and competitiveness.

Cambodia’s economic growth is projected to moderate to 4.8% in 2025, down from 6% in 2024, as the country confronts a combination of domestic and external challenges. The World Bank’s Cambodia Economic Update (December 2025)—titled Coping with Shocks—highlights the pressures created by a softening property market, border disruptions, and new trade restrictions, all of which have slowed economic activity and dampened investor confidence.

Despite these headwinds, the report emphasizes that Cambodia has entered this challenging period with strong macroeconomic buffers, allowing the government room to deploy targeted support and policy reforms.

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Domestic and External Shocks Dampening Growth

1. Property Market Downturn

• The real estate slowdown has reduced construction activity, long a pillar of Cambodia’s economic expansion.

• Weaker domestic demand has also affected related industries such as cement, steel, retail, and banking.

2. Border Disruptions

• Rising tensions and stricter controls have impacted labor mobility, particularly affecting migrant workers.

• Border issues have weakened tourism flows, especially from key neighboring markets.

3. Trade Restrictions

• New global trading measures have introduced uncertainties for export sectors such as garments, footwear, bicycles, and agricultural products.

World Bank Country Manager Tania Meyer noted:

“Cambodia is navigating a challenging period amid combined domestic and external shocks. Strong buffers and targeted reforms can help the country withstand these pressures. Protecting vulnerable households remains essential, especially returnees.”

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Macroeconomic Buffers Provide Stability

Cambodia’s macroeconomic fundamentals remain solid:

• International reserves: Coverage of 7.5 months of imports, providing external stability

• Public debt: Low at 26% of GDP, offering fiscal space

• Inflation: Contained at 2.7% in 2025

• FDI inflows: Reached $2.3 billion in the first half of 2025, a 28.4% increase year-on-year

These inflows helped offset external imbalances, but challenges persist:

• Government revenue is expected to remain subdued due to weaker consumption

• Current account deficit is projected to widen

• Rising costs and trade barriers remain concerns for exporters

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Policy Priorities to Cushion Vulnerable Households and Support Growth

The World Bank proposes a combination of short-term and medium-term measures:

Short-Term Measures

• Emergency cash transfers for vulnerable families

• Training programs and job placement assistance for returning migrants

• Support for livelihoods in sectors affected by border disruptions

Medium-Term Reforms

• Reducing business costs through regulatory streamlining

• Improving access to finance, especially for micro and small enterprises

• Digitizing trade and logistics to lower transaction costs and improve efficiency

• Easing formalization to strengthen the long-term competitiveness of the private sector

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Special Focus: Cambodia’s Informal Economy—A Critical Pillar

A dedicated chapter, Insights into the Informal Economy, highlights the central role played by informal firms in Cambodia’s labor market:

• Informal businesses make up 90% of enterprises

• They account for 88% of national employment, providing crucial income support for households

However, the report reveals key structural issues:

• Informal firms are, on average, 2.6 times less productive than formal firms

• The informal sector is highly diverse, consisting of:

  • “Survival Enterprises” supplying basic household income

  • “High Performers” with productivity levels comparable to formal firms, but with limited access to markets and finance

Recommendations

• Expand social protection for vulnerable micro-entrepreneurs

• Provide upskilling, equipment, and market access for viable informal businesses

• Support formalization by:

  • Reducing registration costs

  • Expanding digital public services

  • Creating clear incentives to transition into the formal system

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Outlook: Reform, Resilience and Rebound Potential

While Cambodia faces a period of elevated uncertainty, robust macroeconomic fundamentals and strategic reforms can help stabilize growth, protect vulnerable households, and create opportunities for more inclusive and sustainable development.

The World Bank stresses that improving the business environment, supporting informal enterprises, and strengthening climate and economic resilience will be central to Cambodia’s long-term recovery and competitiveness.