The World Bank has significantly downgraded Cambodia’s economic growth forecast for 2025, revising it to 4%, down from the previous projection of 5.5%. The adjustment, outlined in its June report, reflects concerns over weakening external demand, uncertainty surrounding trade policies, and rising macro-financial vulnerabilities,  particularly due to a high ratio of non-performing loans (NPLs).

Looking further ahead, the Bank now anticipates GDP growth of 4.5% in 2026, highlighting the economy’s sensitivity to shifts in global trade, especially in the garment, travel goods, and footwear (GTF) sectors, which are heavily reliant on foreign investment and demand, according to Kiripost. 

Despite these pressures, Cambodia recorded an 11.6% year-on-year increase in exports of GTF products and bicycles to the US and EU in the first quarter of 2025. However, this growth is unlikely to offset the broader slowdown projected for the remainder of the year.

The World Bank joins other international financial institutions that have revised their outlook for Cambodia. Just last December, it had forecast 5.5% growth for both 2025 and 2026.

According to the latest analysis, over 40% of Cambodia’s economic output stems from export-driven manufacturing, which also accounts for 19% of formal employment. The United States remains the largest export market, absorbing 37.2% of goods exports and sustaining nearly 31% of jobs in formal manufacturing. Meanwhile, China remains the top source of foreign direct investment (FDI), making up 65.5% of net FDI inflows.

In agriculture, which employs approximately one-third of the Cambodian workforce (3.1mn people), the 2024 dry season rice harvest saw strong yields. However, the sector's contribution to GDP growth remained negligible, adding just 0.2% points. Structural limitations, including reliance on weather conditions and price volatility, continue to restrict the sector’s growth potential.

On the financial front, the World Bank flagged growing concerns over stability, citing a high volume of private sector debt and rising NPLs, which reached 7.9% in traditional banks and 9% in the microfinance sector as of 2024. There are also signs of deterioration in property-related lending.

Additional challenges stem from imported inflation, particularly from the United States, which may further impede GDP growth and slow efforts to reduce poverty.

On a more positive note, increased tourism revenue and remittance inflows have helped offset a significant trade deficit. Gross international reserves reached $24.7bn in March 2025, up 26.4% year-on-year, covering approximately seven months of import needs.

In response to these developments, the World Bank has urged Cambodia to accelerate regulatory reforms and support the growth of small and medium-sized enterprises (SMEs). Reducing trade costs and improving logistics and connectivity were also identified as key priorities.

To strengthen financial resilience, the report called for urgent measures to manage distressed assets, including loan restructuring and the sale of impaired assets. It stressed the importance of enhancing the legal framework for insolvency and bank resolution to ensure efficient and transparent handling of financial institutions in difficulty.

The Bank also advised Cambodia to diversify its economy, moving away from heavy reliance on construction, real estate, and low-value exports, and instead focusing on higher value-added manufacturing, services, and improved agricultural productivity.

Finally, it recommended improved revenue mobilisation to support development in critical areas such as healthcare and education, where current spending remains below that of many other middle-income nations. 

Enhanced public revenues would allow for greater investment in public services, infrastructure, and climate resilience, while also enabling Cambodia to benefit more fully from existing bilateral and regional trade agreements, the World Bank added.