ADB Outlook: Cambodia’s Growth to Hold Steady at 4.5% in 2026 Amid Global Uncertainty

Cambodia's economy is expected to maintain steady growth in 2026 despite mounting global uncertainties, with expansion projected at 4.5%, according to the Asian Development Bank's (ADB) Asian Development Outlook (ADO) April 2026.

The forecast hinges on an early stabilisation scenario, where disruptions in global commodity markets—particularly those linked to the Middle East conflict—do not persist. Under this outlook, growth is expected to strengthen further to 5.0% in 2027, supported by improving external conditions and continued domestic reforms.

Manufacturing Anchors Economic Resilience

ADB highlights manufacturing as the primary engine of growth, demonstrating resilience even as external risks intensify. Industrial output is projected to grow by 7.3% in 2026, driven by:

• Strong global demand for garments, Cambodia's key export sector

• Expansion of non-garment manufacturing, including electrical components, tires, and furniture

"Cambodia continues to show resilience in the face of external pressures," said ADB Country Director Yasmin Siddiqi, noting that diversification within manufacturing is strengthening the country's economic base.

The sustained performance of this sector is also helping attract foreign investment and support employment, reinforcing Cambodia's position in regional supply chains.

Services Sector Faces Short-Term Pressures

While manufacturing remains robust, growth in the services sector is expected to slow to 2.3% in 2026, down from 3.4% in 2025.

This moderation reflects the economic impact of the Thailand border closure, which has disrupted tourism flows and cross-border trade—key contributors to service sector activity.

Nevertheless, government initiatives aimed at revitalising tourism are expected to provide some support, helping stabilise the sector over the medium term.

Agriculture Maintains Modest Growth

The agriculture sector is projected to grow modestly at 0.9%, supported by:

• Continued export demand for rice and cashew nuts

• Government programmes promoting sustainable farming practices

• Efforts to reintegrate returning migrant workers into the agricultural workforce

These measures are helping maintain rural incomes and food production, though the sector remains vulnerable to external shocks.

Strong Investment Signals Investor Confidence

Foreign direct investment (FDI) remains a bright spot in Cambodia's economic outlook. In 2025, approved fixed asset investment surged by 45%, reflecting:

• Continued investor confidence

• Growing diversification into higher-value manufacturing sectors

This trend is expected to support long-term industrial upgrading and economic transformation.

Inflation Risks Linked to Global Commodity Prices

Inflation is forecast to rise slightly to 2.8% in 2026, assuming that global commodity price pressures remain contained.

However, ADB warns that a prolonged increase in fuel prices—driven by the Middle East conflict—could:

• Raise input costs for businesses

• Increase transport and production expenses

• Negatively impact agriculture, manufacturing, and tourism

Such developments could weaken growth prospects and increase cost-of-living pressures.

Fiscal Pressures Expected to Increase

The fiscal deficit is projected to widen in 2026 as the government increases spending, particularly to support vulnerable households, while revenue growth slows in line with economic activity.

Balancing social protection needs with fiscal sustainability will remain a key policy challenge.

Human Capital Key to Long-Term Growth Ambitions

ADB emphasises that achieving Cambodia's goal of becoming a high-income economy by 2050 will require sustained improvements in productivity—driven largely by investments in human capital.

However, skills shortages remain a major constraint, with employers reporting difficulties in finding qualified workers across sectors.

To address this, the government is implementing reforms to:

• Strengthen education and vocational training systems

• Encourage private sector participation in training institutions

• Align workforce skills with industry demands

"Developing a productive workforce is essential for attracting diversified, high-quality investment," Siddiqi said, underscoring the importance of public–private collaboration.

Outlook Hinges on Global Stability and Domestic Reform

While Cambodia's economy has demonstrated resilience, the outlook remains sensitive to external developments, particularly:

• Prolonged commodity price shocks

• Ongoing geopolitical tensions

• Regional trade and tourism disruptions

At the same time, continued progress on structural reforms—especially in workforce development and economic diversification—will be critical to sustaining growth.