Cambodia's Economic Outlook: Stimulus and Tourism Key to Recovery

Cambodia's economic trajectory for 2026 is under scrutiny, with experts warning that the nation could face its weakest growth in nearly two decades, barring significant government intervention and a revival of the tourism sector. Economist Stephen Higgins of Mekong Strategic Capital recently revised the GDP growth forecast down to 2.5%, a notable decrease from an earlier estimate of around 4% made at the start of the year.

Higgins attributed this downgrade to a confluence of factors, including geopolitical tensions, the ongoing conflict in the Gulf, disputes at the Thai border, a crackdown on scam centres, and a prolonged downturn in tourism. He emphasized that while the near-term outlook appears grim, the economy's future is not predetermined. "The government’s response over the coming months could play a significant role in determining whether Cambodia avoids a prolonged slowdown," Higgins stated.

“The government’s response over the coming months could play a significant role in determining whether Cambodia avoids a prolonged slowdown.”Stephen Higgins, Economist, Mekong Strategic Capital

To combat these challenges, Higgins suggested that a substantial fiscal stimulus package could bolster domestic demand and business activity. He highlighted the urgent need for investment in tourism promotion, a sector that has struggled significantly in recent years. "The potential upside exists if the Government delivers a major stimulus package," he noted, stressing that the tourism industry is in a critical state, described as being in a 'code-red' situation.

Visitor numbers remain significantly below pre-pandemic levels, with ticket sales for Angkor Wat continuing to decline. Higgins pointed out that the downturn in tourism predates the recent border tensions with Thailand, indicating that the sector faces deeper structural challenges rather than merely temporary disruptions.

“The potential upside exists if the Government delivers a major stimulus package.”Stephen Higgins, Economist, Mekong Strategic Capital

Despite the bleak outlook for tourism, Cambodia's manufacturing sector is showing resilience, with goods exports rising by 19% in the first five months of 2026. Exports to the United States surged by 32%, with notable growth also seen in shipments to Vietnam, Japan, China, and Europe. Higgins described this performance as one of Cambodia's economic success stories, providing crucial support even as domestic sectors face pressure.

“The challenge now is navigating the current period through targeted government support, restoring tourism competitiveness, and allowing the economy’s stronger underlying fundamentals to re-emerge.”Stephen Higgins, Economist, Mekong Strategic Capital

However, financial pressures are mounting for households and businesses. Approximately $13.5 billion, or 21.7% of outstanding loans, are either overdue by more than 30 days or have been restructured. While Higgins reassured that Cambodia's banking system remains well-capitalized, he warned that ongoing stress in the property market could hinder broader economic recovery.

Looking ahead, Higgins remains optimistic about Cambodia's long-term economic fundamentals, arguing that the current slowdown is a result of temporary shocks rather than a decline in underlying growth potential. He estimated that, without the impacts of the Gulf conflict, tourism struggles, and other factors, Cambodia's underlying growth rate could still approach 8%. "The challenge now is navigating the current period through targeted government support, restoring tourism competitiveness, and allowing the economy’s stronger underlying fundamentals to re-emerge," he concluded.