Thailand has less scope than Cambodia to absorb economic hits from the border conflict between the two countries, according to Mekong Strategic Capital ( MSC ).

"We believe it is more likely to suffer a recession than Cambodia,” the Phnom Penh-based investment advisory firm says in an updated outlook released on August 8.

Before the conflict erupted in July, the firm estimated Thailand’s GDP growth for 2025 to about 2% for this year and about 5% for Cambodia ( since downgraded to around 3% ).

With government debt at 63% of GDP, MSC says, Thailand has “less flexibility to support the economy” compared to Cambodia’s highly concessional government debt at 27% of GDP.

Moreover, at 90% of GDP, Thailand’s household debt “limits the ability for domestic consumption to act as a buffer against external shocks”.

Labour, tourism factors

The company, which has a presence in Bangkok as well as Phnom Penh,  expects the two main drivers of a Thai recession to be a loss of tourism income and a sharp labour force contraction, which could together reduce GDP by at least 2%.

While Thailand has a more diverse tourist offering than Cambodia, MSC still expects an impact with a 5% fall in tourism reducing GDP by around 1%.

The loss of an estimated 750,000 Cambodian migrant workers – almost 2% of the Thai workforce – could have a similar effect.

"While difficult to quantify GDP impact of this loss of labour, assuming conservatively that these workers were in low-productivity roles, this could reduce GDP by around 1%.”

As for the impact of US tariffs on Cambodia, the firm notes that the new 19% tariff is in line with that imposed on Cambodia’s major competitors, including Thailand.

"At this level, it is not likely to drive manufacturing diversion to other markets, or cause factories to shift. As such, we don’t expect this 19% to have a material direct impact on Cambodia’s GDP,” MSC says.

"We do expect the tariffs to have a negative impact on the US economy from 2H2025 onwards, which will flow through to lower consumer demand, and in turn have a modest impact on imports from Cambodia ( and most other exporting countries )."