As Cambodia charts its course toward post-pandemic recovery, the country is projected to grow by 5.6% in 2024 and 5.9% in 2025. This growth is fueled by a strong rebound in the garment sector and continued expansion in the non-garment manufacturing sector, marking an important phase for the country’s economic resilience. However, despite the optimistic outlook, Cambodia faces several external and domestic challenges, including vulnerabilities in the banking and real estate sectors. Addressing these risks and accelerating key reforms will be crucial to ensuring sustainable economic growth in the coming years.
Cambodia’s recovery in 2023, despite slower-than-expected growth of 5.0%, was primarily driven by the services sector, particularly tourism, and the robust performance of non-garment manufacturing industries like solar panels, vehicle parts, and electrical components. As Cambodia moves into 2024 and 2025, the garment sector is expected to see a resurgence, buoyed by stronger demand from advanced markets. The non-garment manufacturing sector is poised for sustained growth, supported by stable foreign direct investment (FDI) inflows.
Cambodia’s growth outlook faces significant external risks, including a potential slowdown in China’s growth, global trade disruptions, and fluctuations in commodity prices. Domestically, the banking sector is grappling with rising non-performing loans (NPLs), particularly in sectors like real estate, hospitality, and retail. While Cambodia’s banking system has shown resilience through stress tests, some banks may struggle to meet capital adequacy requirements, especially those with large exposures to sectors facing financial distress.
To navigate these challenges and achieve sustained post-pandemic growth, the Cambodian government must focus on fiscal consolidation to rebuild policy space. Key actions include increasing the efficiency of public expenditure, reallocating resources toward government priorities, and raising revenue to support development and enhance fiscal sustainability. Additionally, streamlining tax incentives for investment will help preserve fiscal space and limit forgone revenue.
The National Bank of Cambodia should resume normalizing post-pandemic policies by 2025, including revising the reserve requirement ratio for foreign currencies and ensuring full implementation of the capital adequacy framework. Developing a deposit insurance scheme and a bank crisis management framework will further bolster financial stability.
Looking to the long term, Cambodia must focus on mitigating the scarring effects of the pandemic, particularly in education and workforce development. Enhancing human capital through better education and skills training will be crucial to boosting productivity and enabling Cambodia to integrate into global value chains.
The authorities should continue driving infrastructure development, particularly in transportation, digitalization, and logistics, which will lower costs and improve Cambodia’s competitiveness. These initiatives will help attract more FDI, particularly in high-value industries, and enhance the country’s overall economic resilience. The timely implementation of structural reforms outlined in Cambodia’s Pentagonal Strategy will be key to unlocking the country’s growth potential.
While Cambodia’s real estate sector faces short-term challenges, the long-term outlook remains promising. With reforms and tighter regulatory frameworks, the sector is expected to recover as new opportunities for development emerge. The government’s focus on urban planning, infrastructure upgrades, and regulatory oversight will create a more stable environment for real estate investments. For investors and agents across Southeast Asia, Cambodia presents a wealth of opportunities in both residential and commercial property sectors as demand for new developments increases.
Cambodia’s economic recovery in the wake of the pandemic is gaining momentum, driven by key sectors like garment manufacturing, tourism, and non-garment exports. However, the country must remain vigilant in managing external risks and domestic vulnerabilities, particularly in the banking and real estate sectors. By implementing robust policy reforms and focusing on long-term investments in infrastructure and human capital, Cambodia can ensure sustainable growth and development in the coming years.
For real estate agents, developers, and investors across Asia, the opportunities in Cambodia are abundant, from the growing infrastructure projects to the expanding manufacturing sectors. Staying ahead of the curve in this dynamic market will require a keen understanding of local developments, regulatory changes, and emerging investment opportunities. Now is the time for businesses to engage with Cambodia’s thriving post-pandemic economy and tap into its promising future.