Cambodia in 2025: Economic Resilience Tested by Regional Tensions and Reform Challenges
Economic Outlook and Development
Cambodia’s economy showed strong performance in 2024, achieving 6 percent real GDP growth, supported by robust rebounds in garment and agricultural exports and tourism recovery. This positive momentum continued into early 2025.
Economic projections indicate GDP growth of 5.8 percent in 2025, with inflation expected to reach 2 percent. However, the outlook faces downside risks from external factors and domestic vulnerabilities, including policy changes by major trading partners and weakness in the construction and real estate sectors.
Border Conflict and Political Developments
Tensions between Cambodia and Thailand escalated in May 2025 when a Cambodian soldier was killed during a clash around the Emerald Triangle. The situation worsened in July following a landmine incident involving a Thai soldier, leading to direct armed conflict with both nations claiming self-defence.
The conflict has resulted in the displacement of hundreds of thousands of civilians. While a ceasefire went into effect on July 28, allowing diplomatic negotiations to proceed, sporadic armed confrontations have continued, with both countries accusing each other of violating the agreement.
Reform Initiatives and Challenges
With Cambodia’s upcoming graduation from Least Developed Country status by end-2029, there is increasing urgency to improve productivity and competitiveness. Key priorities include enhancing the business environment, strengthening governance and anti-corruption efforts, improving rule of law, property rights, and access to information, while also strengthening social safety nets and investing in human capital.
Structural reforms are crucial for promoting economic diversification and improving competitiveness. The government is focusing on enhancing human capital, infrastructure investment, strengthening the business environment, addressing climate vulnerabilities, and promoting renewable energy to attract more diverse foreign direct investment.
International Relations and Support
Cambodia continues to strengthen its international partnerships, as evidenced by recent agreements such as the MoU between the Ministry of Labour and Vocational Training and China’s Anhui Provincial Education Development Fund to establish a vocational training centre and skills recognition facility.
The country is also expanding its tourism sector through strategic partnerships, including a recent agreement between the Cambodia Tourism Board and China’s Sanya Tourism Board to advance tourism marketing and promotion between the two destinations.
