PHNOM PENH – The Asian Development Bank (ADB) has projected steady economic growth in Cambodia this year and next, with inflation set to rise.

The economic trajectory, however, remains risky following President Donald Trump’s steep tariffs coming into force.

The gross domestic product is estimated to grow by 6.1 percent and 6.2 percent in 2025 and 2026 respectively due to increased demand for manufactured goods and tourism recovery, the ADB’s Asian Development Outlook April 2025 said.

Sectors driving growth are industry, projected to rise to 9.3 percent from 9.2 percent in both years, tourism, and agriculture.

Tourism earnings are projected to grow moderately due to a rise in international tourist arrivals but real estate activity was still weak.

Agriculture is estimated to grow by 1 percent and 1.1 percent in 2025 and 2026 respectively due to 2024’s rise in foreign direct investment. Last year, agricultural production grew by 0.9 percent and exports increased by 17.5 percent led by cassava, rubber and cashew nuts.

Rising food costs and offsetting a decline in fuel prices contribute to the rise of inflation in 2025, climbing to 6 percent year-on-year entering 2025. The annual rate is forecast to increase to 3.7 percent in 2025 and 2.4 percent in 2026.

The outlook highlighted risks associated with global uncertainties, such as trade policy in the US, instability in the Chinese property sector, and geopolitical tensions that affect supply chains.

Risks include weakened exports, slower-than-expected growth among trading partners, rising non-performing loans and extreme weather.

What Could Happen After Trump’s Steep Tariff?

Trump’s tariffs came into effect on April 9 after the announcement on April 3. A 49 percent tariff increase was imposed on Cambodian goods, prompting a proposal to negotiate and fear of an economic downturn.

ADB economist Milan Thomas said the tariffs have three possible goals, including gaining concessions from trade partners, raising government revenue, balancing bilateral trade deficits, and building US manufacturing capacity.

The least damaging objective is to extract concessions from trade partners, which is about deal-making. The second objective could be to raise revenue for the US government, potentially lowering income taxes, he said.

Thomas said that the U.S.'s recent response to Vietnam's overtures suggests that balancing the trade deficit is prominent among those goals.

“You have to wait and see because things are evolving. It's for us to respond based on economic fundamentals and things that will build a stronger and more resilient economy so that we're not dependent on one market and a set of very narrow products.”

ADB country director Jyotsana Varma said the possibility of Trump moving manufacturing back to the US could impact foreign direct investment in the women's and textiles sectors. The impact on FDI is uncertain, as much FDI is from China due to the lower tariff, but it has changed now.

“The answer is not so clear,” she said. “Let's see how that will play out, but a little bit too soon to assess.

“The way Cambodia responding is a sound and a mature response, to reach out, to negotiate, to offer something that would be on the table. These are the problems, to negotiate, to offer and to see what could come further.”

Doung Poullang, principal economics office at ADB, said the situation is not unique to Cambodia, as competitors in the region, including Vietnam and China, are also affected.

“China still wants to export to the US. I think. There is a chance that there will be more relocation in terms of production of the region,” he said. “But, let’s keep it short that we do not want to discuss too much because it becomes speculation rather than reality.”

Transforming the Economy

All three embrace market diversification through strategic investment in digital public infrastructure and human capital development, which can boost traditional growth engines and create opportunities.

Doung Poullang said the country has the potential to revitalize traditional engines of agriculture, manufacturing, and tourism while improving its position in global value chains by engaging in more complex manufacturing.

Digital transformation is key, he said, pointing out three dimensions of the transformation enhancement, online services, telecommunication infrastructure and human capital.

According to ADB’s outlook, policymakers must create an enabling environment as the digital transformation will ultimately be driven by the private sector.

The country must invest in digital infrastructure such as universal unique digital IDs, broadband access, data centers, cybersecurity, and digital innovation hubs.

“Even as global uncertainties persist, strategic investments in digital public infrastructure and human capital will be crucial for economic diversification and unlocking new drivers for inclusive and sustainable growth,” Varma said.