ADB Lowers Cambodia's 2025 Growth Forecast Citing Border Tensions and US Tariffs

Forecast Revision Announced

The Asian Development Bank (ADB) announced on September 30, 2025, a significant downward revision of Cambodia's economic growth forecast for the year 2025. The new projection stands at 4.9%, a notable decrease from the previous estimate of 6.1% made in April 2025. The ADB also adjusted its forecast for 2026, lowering it to 5.0% from an earlier 6.2%.

According to the ADB's latest outlook, the primary factors contributing to this downgrade are 'prolonged border tensions with Thailand' and 'uncertainty in the U.S. export market' due to new tariff policies.

Impact of Geopolitical and Trade Headwinds

The ongoing border tensions with Thailand have emerged as a significant economic headwind for Cambodia. Recent reports indicate incidents such as 'unilateral gunfire' from Thai armed forces on September 27, 2025, near the Preah Vihear-Ubon Ratchathani border, which led to evacuations and disrupted cross-border trade and livelihoods. These tensions are expected to dampen tourism and broader service activities in the latter half of the year and beyond. Economists have estimated that a prolonged conflict could result in substantial economic losses for both nations, impacting key sectors like agriculture, fisheries, and construction, and leading to the displacement of communities and workers. Rising defense costs and additional social spending tied to this unrest are also expected to contribute to a widening fiscal deficit, projected to reach 3.1% of GDP, or $1.5 billion, in 2025.

Concurrently, a U.S. tariff hike has introduced considerable uncertainty into Cambodia's export market. The U.S. announced a 36% tariff on all Cambodian products entering the American market, effective August 1, 2025, citing an 'unfair' trade imbalance. Cambodia is particularly vulnerable to these tariffs, as the U.S. accounts for approximately 58% of its total exports, with a forecast contraction of 23.9% in exports to the U.S. This policy shift is expected to impact a wide range of Cambodian exports, including garments, footwear, bicycles, and agricultural products.

Resilience and Sectoral Performance

Despite the revised outlook, Jyotsana Varma, ADB Country Director for Cambodia, noted that the economy demonstrated resilience in the first half of 2025. 'Lower-than-expected food price increases and declining fuel costs helped ease inflation, while industrial activity remained robust,' Varma stated. Inflation eased sharply from 6.0% in January to 1.6% in June 2025, with an expected average of around 2.0% for both 2025 and 2026.

Key sectors continue to show mixed performance:

• Industry: Garment exports surged by 22.2% year-on-year in the first half of 2025, partly due to U.S. buyers frontloading orders in anticipation of higher tariffs.
• Services: Growth is projected to moderate to 2.8% in 2025 and 2.6% in 2026. While tourism saw recovery in early 2025 with increased arrivals from China, border tensions are expected to weigh on the sector.
• Agriculture: This sector is forecast to expand by 1.1% in both 2025 and 2026, supported by sustained export demand and the anticipated return of agricultural laborers from Thailand.

The ADB still anticipates steady expansion for Cambodia through 2026, underpinned by a resilient industrial base and sustained inflows of foreign direct investment.