Cambodia is expected to benefit from US President Donald Trump’s focus on imposing tariffs against China and possibly also Vietnam to address bilateral trade imbalances, Mekong Strategic Capital says.

According to the Phnom Penh-based investment and advisory firm, “Trump’s focus on China ( and potentially Vietnam ) will result in more manufacturing shifting to Cambodia.

“This may accelerate what has already been a longer-term trend,” says the firm’s snapshot for Cambodia this year, released on January 22. “But there may be downsides.”

The firm cites pressure from the US Congress to prohibit preferential treatment under free-trade agreements with third countries if Chinese content in imports exceeds a certain level – or where goods are made by units of Chinese companies in third countries.

Both China and Cambodia are members of the Regional Comprehensive Economic Partnership ( RCEP ), the world’s biggest free-trade agreement grouping 15 economies. Japan, South Korea, and the other nine countries in the Association of Southeast Asian Nations ( Asean ) are also members along with Australia and New Zealand.

Among Asean countries, Vietnam had by far the largest merchandise trade surplus with the United States in 2023. Thailand ranked a distant second followed by Malaysia, Indonesia, and Cambodia.         

Infrastructure investment

As for Cambodia’s overall outlook in 2025, the firm sees a “high level of uncertainty” – notwithstanding “plenty of momentum going into the economy”, with the World Bank last week projecting 5.5% growth for the year.

Rising domestic demand is expected to be a “key driver of growth”, infrastructure investment is a “major positive”, and growth in bank lending is improving, albeit only slightly.

On the other hand, the global environment is likely to be “much more challenging”, export growth is expected to slow from very high levels last year, and tourism remains below pre-Covid levels.

Indeed, Cambodia’s air passenger arrivals last year were only about 50% of 2019 levels, compared with about 95% for Vietnam.

‘Ugly’ property market up for consolidation

The property market is "still ugly” with significant oversupply. “We need a significant fall in price and a significant fall in volume,” the firm says, apparently referring to the continued construction of high-rise apartments in and around Phnom Penh. “There’s a lot of ‘latent’ volume.”

Resolving non-performing loans of banks “will require a large volume of property sales over the coming years”, it predicts. “We need even further falls in price. Banks, and potential buyers, understand this.”

According to the firm, around 14% of loans are either in arrears or have been restructured. These are “mostly secured by property, which in many cases will need to be sold”.

As for the banking sector, credit growth is at historic lows. But deposit growth is “very strong” – so much so that “banks are generating significant surplus liquidity”.

‘Plenty of opportunities’

In the longer term, Cambodia remains a fundamentally high-growth economy with “plenty of opportunities”, the firm says. “Growth in manufacturing will be the major driver of Cambodia’s future.”

In the shorter term, “cash is king” – along with cash-generating businesses.

“Banks are offering some great deals at the moment.”