Cambodia’s economy has bottomed out after two years and the mid-term outlook is positive, underpinned by booming exports, more diversified manufacturing and stronger tourism receipts, Mekong Strategic Capital says.

In its August economic snapshot, the Phnom Penh-based investment advisory firm says it also expects growth to be supported by continued investment in infrastructure by the new government formed last year.

The government of Prime Minister Hun Manet “continues to impress, but needs to consider more fiscal stimulus”, it says, highlighting the need to help small farms – where most people are employed – get bigger or transition out of the agricultural sector.

Export diversification

On diversifying manufacturing away from garments, the firm says the Manet administration “has been more effective at attracting this type of investment”, notably in exports of solar panels. 

The report says tighter liquidity arising from higher global interest rates, a sharp contraction in garment exports and weaker-than-expected growth in foreign tourist numbers weighed heavily on the economy in 2022 and 2023 – notwithstanding growth estimated at 5% last year.

But the interest rate cycle has now peaked, liquidity has improved and the banking sector is now “awash in liquidity”, it says, noting that deposits grew at an annual rate of 20% in the six months to June. “Interest rates are falling, and loan arrears should start to decline by end of year.”

Other signs of recovery are resumed growth in garment exports and visitor arrivals since the end of last year – along with improved excise collections and increased consumer spending on imported motor vehicles following a collapse of 43% last year. 

Demography as destiny

Although the global environment is “more uncertain than six months ago”, the firm highlights Cambodia’s strong demographic outlook.

Compared to 2022, the country’s working-age population is projected to increase by 18% by 2040 compared to 4% for Vietnam. In Thailand, the working-age population is expected to contract by 14% over the same period.

Projections for 2050 are even more striking – an increase of 22% for Cambodia, zero growth for Vietnam and a contraction of 22% for Thailand.