ASIATODAY.ID, PHNOM PENH — Cambodia’s economic outlook is deteriorating as growth is projected to slow sharply to 4.8% in 2025, down from 6% in 2024, amid a combination of intensifying domestic and external shocks.
In its latest report, the World Bank warns that the country has entered a vulnerable phase and urgently needs strong macroeconomic buffers and targeted structural reforms to prevent deeper economic risks ahead.
The Cambodia Economic Update December 2025: Coping with Shocks highlights several key drivers behind the slowdown, including a weakening property sector, border disruptions, and new trade restrictions that are weighing heavily on domestic demand, labor markets, and tourism.
“Cambodia is navigating a challenging period amid combined domestic and external shocks,” said Tania Meyer, World Bank Country Manager for Cambodia on December 11, 2025.
“Strong buffers and targeted reforms can help the country withstand these economic pressures. Protecting vulnerable households, including returnees, remains essential. At the same time, improving the business environment, supporting informal enterprises, and easing formalization are critical to unlock growth, level the playing field, and create better-quality jobs.”
Macro Buffers Remain Solid, but Fiscal Risks Are Rising
Despite the economic slowdown, Cambodia still maintains strong macroeconomic buffers:
International reserves remain robust, covering 7.5 months of imports.
Public debt stays low at around 26% of GDP.
Inflation remains contained at 2.7% for 2025.
Foreign direct investment inflows reached US$2.3 billion in the first half of 2025, rising 28.4% year-on-year.
However, these strengths are now overshadowed by emerging vulnerabilities. Government revenue is expected to weaken alongside reduced household consumption, while the current account deficit is projected to widen, signaling rising external pressures.
To cushion the impact of the slowdown, the report recommends several immediate policy measures, including emergency cash transfers, reskilling programs, and job-placement support for returning migrant workers. These steps aim to stabilize household income and sustain domestic demand.
In the medium term, Cambodia must accelerate its reform agenda by: reducing the cost of doing business, expanding access to finance for micro and small enterprises, streamlining trade and logistics through digitization, these reforms are considered essential to boost productivity, strengthen competitiveness, and secure long-term economic resilience.
Informal Economy: A Massive but Low-Productivity Engine
The report’s special chapter, “Insights into the Informal Economy,” underscores the vast scale of Cambodia’s informal sector—representing 90% of all enterprises and 88% of total employment. This sector plays a vital role in supporting household incomes, especially during economic shocks.
However, the analysis also reveals a significant productivity gap: informal firms are, on average, 2.6 times less productive than formal firms. The informal sector itself is highly diverse, ranging from Survival Enterprises that provide basic livelihoods to vulnerable families, to High Performers whose productivity can match—or even exceed—that of formal businesses.
The World Bank outlines a three-pillar strategy to strengthen the informal sector and improve overall economic resilience:
1. Expand social protection for owners of Survival Enterprises to safeguard basic household income.
2. Support viable informal businesses with training, finance, and productivity-enhancing tools.
3. Lower barriers to formalization by reducing registration costs, expanding digital government services, and introducing incentives for high-potential enterprises.
(AT Network)
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