Customers outside a shopping mall in District 1 in Ho Chi Minh City, Vietnam, on Saturday, Oct. 22, 2022. Prime Minister Pham Minh Chinh is confident Vietnam’s growth will exceed expectations this year, and retain the title of Southeast Asia’s fastest-growing economy through next year, as it emerges from the pandemic. Photographer: Maika Elan/Bloomberg
EIGHTEEN months into a historic interest-rate upcycle, South-East Asia’s economic prospects continue to stand out in a world faced with high inflation and soft demand.
Three long-term trends will ensure that this dynamic region remains the growth engine of the world. Our latest forecast is for the six largest economies in South-East Asia to grow by 4.2% this year and 4.8% next year, far outstripping the expansion expected in the developed world (1.1% in 2023 and 0.7% in 2024).
This is all the more remarkable given tourism dollars have not flowed from China to South-East Asia as anticipated. For example, in Singapore and Thailand – two popular destinations for Chinese holidaymakers – tourist arrivals from China are only at about one-third of pre-Covid levels. A recovery in tourism is certainly a welcome boon for South-East Asia. At the same time, three long-term trends – trade, transition to net-zero, and digital transformation – will power the region’s economic growth for decades to come.
South-East Asia has come a long way as a manufacturing dynamo. It now accounts for 8% of global exports and since 2020 has surpassed the European Union to become China’s largest trading partner.
The region is also benefiting from a restructuring of global supply chains as it sits at the crossroads of two of the world’s largest free trade agreements: the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
RCEP in particular, with its tariff reductions and business-friendly rules of origin, is increasing the appeal of South-East Asia as a manufacturing base, a fact that more corporates are recognising.
A recent HSBC survey shows that over the next 12 to 24 months Asia-Pacific corporates will place 24.4% of their supply chains in South-East Asia, up from 21.4% in 2020. And as more companies diversify and adopt the “China+1” strategy, South-East Asia will continue to gain market share.
More global foreign direct investment will be directed towards the region as the centre of gravity of global manufacturing continues to shift. Transition to net-zero is the second structural trend that is bringing tremendous opportunities as South-East Asia races to “green its grid”.
South-East Asia is among the world’s most at-risk regions when it comes to global warming in general and rising sea levels in particular. Yet to fuel the region’s development, demand for energy continues to grow rapidly.
Most of the energy powering South-East Asia comes from fossil fuels, so it is pleasing that Indonesia and Vietnam – two of the region’s most dynamic economies as well as two of the world’s top coal-burning countries – have announced their respective Just Energy Transition Partnerships.
Under this new funding model, tens of billions of dollars in public and private finance will be mobilised, catalysing the decarbonisation of the countries’ power sectors and facilitating their energy transition. Innovation in clean tech is also growing fast in South-East Asia.
Clean tech is at the cusp of exponential growth, and as with fintech, companies in the region have the opportunity to localise a global technology and scale it domestically.
Investment and financial support will only help accelerate its development and adoption. The third long-term cause for optimism is the digital transformation of the region’s economy.
South-East Asia has a vibrant digital economy, worth nearly US$200bil (RM909bil) as of 2022 and expected to surpass US$300bil (RM1.36 trillion) by 2025.
Add an Internet population of 460 million (out of a total population of 600 million), and companies are transforming their business models to cater to changing customer behaviour.
Whereas pre-Covid eCommerce was only a nice-to-have, the pandemic has underscored the criticality of an online presence to a firm’s existence.
The shift to D2C, or the direct-to-consumer business model, gives firms better control over sales, marketing and, crucially, customer data – which can not only provide real-time analyses but also generate accurate forecasts.
Underpinning this explosive growth of South-East Asia’s digital economy is the proliferation of real-time payments in the region – Thailand is the world’s fourth-largest real-time payments market by volume, for instance (ACI Worldwide, 2023).
While instantaneous payments can be sent and received domestically, the real prize lies in linking up the region’s various real-time payments systems.
When that becomes a reality, we can expect a jump in the velocity of transactions, whether they are business-to-business or business-to-consumer, which in turn will lead to greater economic activity in the region.
Nowhere is immune to the challenges facing the global economy. The rising cost of capital will only increase the scrutiny of every investment dollar, whether it is used for moving factories, decarbonising supply chains, or digitising operations.
But as an economic engine with favourable demographics, South-East Asia is well positioned to capture the opportunities stemming from these three long-term trends.
The region needs to continue to nurture and attract talent, and as an industry we shall continue to play our part in realising South-East Asia’s growth potential. — The Jakarta Post/ANN
Amanda Murphy is head of commercial banking, South and South-East Asia, at HSBC. The views expressed are the writer’s own.
