The World Bank on Tuesday urged East Asia and Pacific countries, including Cambodia, to step up investment in job skills, job creation and digital infrastructure to avoid a “trade trap” and rising poverty amid slowing global growth.
In its latest regional economic update, the world’s largest development lender said East Asia and Pacific (EAP) GDP growth remains above the global average but is projected to slow in 2025 and again in 2026.
The report cited sluggish momentum as retail sales rise but consumer confidence lags behind pre-COVID levels, industrial growth fails to lift weak business sentiment, and export surges face waning orders under higher tariffs.
“East Asia’s export-oriented labor-intensive growth lifted a billion people out of poverty in the last three decades, but the region now faces the twin challenges of trade protection and job automation,” said Aaditya Mattoo, the World Bank’s EAP chief economist. He said business climate reforms and education improvements could boost opportunity and capacity.
The Bank said many workers across the region, including eight ASEAN nations, remain in low-productivity or informal sectors, while the number of people vulnerable to falling into poverty now exceeds the size of the middle class in most countries.
Cambodia’s economic outlook had already been downgraded by the Bank to 4.0% growth earlier this year from a 5.5% forecast in June. That compares with 5.4% growth in 2024 and falls well short of the 7.0% annual rate the U.N. says least developed countries need to meet sustainable development goals.
During the report’s virtual launch, Mattoo highlighted growing risks from expanding U.S. tariffs under President Donald Trump and wider global uncertainty.
“Cambodia has tremendous potential and has benefited greatly from openness, but it is now caught in a trade trap,” he said, pointing to the country’s dependence on low-skilled garment exports.
Cambodia’s export levy to the United States – its second-largest market for garment exports – was recently cut to 19%, down from earlier rates of 49% and 36% imposed after the onset of Trump’s trade war.
After an initial scare before tariffs were lowered to more competitive levels, Cambodia’s exports of garments, footwear, travel goods (GFT) and bicycles have rebounded. But Mattoo warned that next year will likely be tougher.
The GFT industry employs nearly 1 million workers in Cambodia.
While the Bank noted that automation is slated to reshape regional labor markets which could displace low-skilled workers, it highlighted that many Cambodians are stuck in informal jobs.
More than 88% of Cambodian workers are in informal jobs with limited benefits, according to the International Labor Organization.
“The challenge for countries like Cambodia is to balance expanding education with creating quality job opportunities, or risk rising unemployment and dissatisfaction,” Mattoo said, referring to the shortcomings of the country’s education system.
Cambodia’s non-preforming loans make up 7% of total gross loans, the second highest among EAP nations, another financial sector vulnerability highlighted in the report.
Vorn Pao, president of the Independent Democracy of Informal Economy Association (IDEA), said Cambodia still relies on a low-skilled workforce, particularly in factories and construction sites.
“As we can see, many of our citizens have limited advanced skills, especially in digital technology,” he said. “We don’t lack workers, but we lack highly skilled personnel for senior management positions.”
Following a brief but deadly border clash with Thailand in July, at least 900,000 migrant workers have returned, according to government estimates.
While some factories have ramped up hiring to absorb the influx, Pao warned the country could face additional economic strain if worker skills are not strengthened.
He also highlighted Cambodia’s shortage of large industrial companies, such as those in electronics and vehicle manufacturing, sectors where neighboring countries have drawn direct investment from leading global firms.
The government is meanwhile pushing policies to upskill workers and attract higher-value investment amid growing uncertainty.
Labor Ministry spokesperson Sun Mesa said the ministry has trained hundreds of thousands nationwide in what it considers priority vocational sectors, including electricity, construction, technology and tourism.
From 2024 to 2028, the ministry plans to expand vocational training across 45 programs in 37 schools, Mesa said, aiming to attract higher-value investments such as mechanical parts manufacturer MinebeaMitsumi, which operates an assembly plant in Phnom Penh.
Spokesman Meas Soksensan of the Ministry of Economy said the government is focusing on both human capital and digital infrastructure to support economic growth.
On returning migrant workers, he said the Labor Ministry is involved in providing support, but noted that if individuals are unable to secure new jobs, the government may face added responsibility.
(Additional reporting by Khuon Narim and Moun Liza)
