The World Bank has downgraded its economic projections for Indochina, with Cambodia and Laos expected to struggle, as non-performing loans continue to mount amid falling demand and trade uncertainty that has threatened macroeconomic instability.
Brave-faced officials in both countries have a history of talking negative realities down and their prospects up, but the fact is the numbers are well below the U.N. Sustainable Development Goals of 7.0 percent GDP growth, required for least developed countries to achieve sustainable development.
The World Bank’s 2025 forecast for Cambodia was slashed to just 4.0 percent from a forecast of 5.5 percent in the June report. That compares with 5.4 percent growth in 2024. It projected growth in Laos at 3.5 percent from its previous target of 3.7 percent and 4.1 percent in 2024.
The Bank said that weaker GDP forecasts indicated a slowdown in poverty alleviation in Cambodia, which would have improved with higher economic growth. It added that rising remittances and tourism revenues had helped offset a substantial merchandise trade deficit.
It also warned that macrofinancial stability was at risk amid high levels of private debt registered, and of a sharp rise in non-performing loans to 7.9 percent in the banking industry and 9.0 percent in the microfinance sector in 2024.
A deterioration of property loans was cited as a cause, but the report added emerging risks from inflation stemming from the United States would impact GDP growth further, with the global economy expecting its “weakest run” since 2008.
“Economic diversification is critical for Cambodia to sustain growth and job creation amid uncertainty, especially by moving beyond its reliance on construction and garment exports and promoting higher value-added manufacturing and services,” said World Bank Country Manager for Cambodia, Tania Meyer.
“Revenue reforms can support a better business environment while generating fiscal space for critical investments in human capital and infrastructure.”
The figures predate the border dispute between Thailand and Cambodia, which has rapidly deteriorated into a political and economic stand-off, with Bangkok closing borders and Phnom Penh banning Thai goods and cutting off access to cross-border internet and electricity connections.
Hundreds of thousands of Cambodian workers are currently working in Thailand and should they return, analysts said, this can only hurt remittances over the coming months, potentially longer, and further damage growth prospects.
Tourism, transport, electricity generation, mining, agriculture, and manufacturing sectors continued to be the main drivers of Laos’ economy, the World Bank said, but a weak domestic currency, an inflation rate of 11.2 percent, debt deferrals, and a tighter monetary policy were impacting growth.
“Economic conditions remain difficult in the Lao PDR, as high public debt and persistent inflation affect household incomes and development,” it said. “Economic volatility will continue to limit poverty reduction, with spending on health, education, and social protection remaining inadequate.”
Elsewhere in the region, growth rates for Indonesia, Thailand, Malaysia, the Philippines, and Vietnam were also clipped, while war-torn Myanmar saw a contraction of 2.5 percent, down from a previous growth forecast of 2.0 percent.
The World Bank said much of the data required for the Myanmar forecast had not been computed “because of a high degree of uncertainty” – an apparent reference to the four-year civil war.
Vietnam, however, is faring better with the highest projected growth rate for regional countries listed in the report. The World Bank said its economy was expected to grow by 5.8 percent in 2025, down from a previous outlook of 6.6 percent and 7.1 percent growth in 2024.
Vietnam is experiencing a recovery with Communist Party chief To Lam maintaining the “blazing furnace” crackdown on corruption. The World Bank noted that the country was continuing to benefit from its shift to a market economy, elevating it to a lower-middle-income country.