Tourists and monks at Angkor Wat in Siem Reap province
Tourists and monks at Angkor Wat in Siem Reap province in December 2025. Travel cancellations linked to the Thai-Cambodian border conflict left Cambodia's main tourist attraction unusually quiet, with arrivals falling almost 45% year on year in the first quarter. TANG CHHIN Sothy / AFP via Getty Images

Cambodia has faced two shocks in the same year and is being held up by a third development that arrived by coincidence.

Border clashes with Thailand, which began in 2025, led to the return of nearly one million migrants, significantly reducing remittance inflows and tourism receipts. Tourist arrivals fell by almost 45% year on year in the first quarter of 2026.

For an economy of roughly 17 million people, a return of that scale is not a labour market adjustment — it is a demographic event. Cambodian workers in Thailand have historically been among the largest migrant populations in Southeast Asia, and their remittances a significant component of household income across rural provinces.

The Iran war compounded the pressure. Domestic inflation surged to its highest level in more than a year during March and April, eroding firms' profit margins and consumers' purchasing power.

Exports and investment are holding it together

The offsetting story is on the production side, and it has been stronger than expected.

Merchandise exports continued to perform relatively well, growing at a faster pace in the first half of 2026 than in the second half of 2025. Investment also accelerated at the start of the year, driven by increased foreign direct investment in manufacturing.

The World Bank's assessment is that this investment is bolstering the labour market and partially absorbing returning migrants. That is a fortunate coincidence of timing rather than a designed response — the FDI decisions predate the border conflict.

Cambodia attracted $5.2 billion in foreign direct investment in 2025, with China accounting for over 70% of inflows. Garment, footwear and travel goods exports reached $15.5 billion in the same year.

The concentration problem underneath

Cambodia's export base is narrower than almost any economy in the region, which is what makes the current stability precarious.

Garments and textiles account for around 70% of total exports. The United States is the largest single-country destination at roughly 38% of the total. Approximately 700,000 people are employed in the garment and footwear sector, the majority of them women, with a further 500,000 in tourism and 200,000 in construction.

That means one sector, selling largely to one market, employs the bulk of Cambodia's formal workforce — and tourism, the second largest employer, is the sector that just contracted 45%.

The government raised the minimum wage for garment, footwear and travel goods workers to $208, covering nearly a million people.

What to watch

Whether migrants stay is the first question. Nearly a million people returning is a shock; nearly a million people remaining is a structural change to the labour force, with implications for wages, informality and the absorptive capacity the World Bank is counting on.

The second is tourism. A 45% decline in arrivals is not something manufacturing investment can offset, because the two employ different people in different provinces.

The third is the border. The conflict that triggered the returns has not been resolved, and Thai and Cambodian forces engaged in nearly three weeks of heavy fighting earlier this year. Cambodia's exposure to that dispute is economic before it is military.

The World Bank projects growth of 4.3% in 2026, strengthening to 5.1% in 2027 — in line with the East Asia and Pacific average and well above the projected global rate of 2.6%.