SINGAPORE: According to an annual industry report released on Wednesday by Google, Temasek Holdings, and Bain & Company, the growth of Southeast Asia’s internet economy in 2023 is projected to be 11%, a deceleration from the previous year’s growth rate of 20%. The report also revised down the estimated value of the region’s internet economy in 2025 from $330 billion to $295 billion.
In a joint statement, the report’s authors noted that digital economy sectors are displaying promising growth trends, with travel and transport expected to surpass pre-pandemic levels by 2024.
The adjustment in the growth forecast is primarily attributed to a shift in long-term objectives and post-pandemic stabilization. Florian Hoppe, Partner and Head of Vector in Asia-Pacific at Bain & Company, explained that the region is now on a more stable trajectory towards 2025.
This dynamic region, comprising 11 countries with a population of over half a billion people, predominantly young demographics, widespread smartphone adoption, and a burgeoning middle class, stands as one of the world’s most rapidly expanding internet markets.
The report highlights Vietnam’s digital economy, projecting an annual growth rate of 20% for the 2023-2025 period, with expectations to reach approximately $45 billion by 2025. This growth rate is the fastest in Southeast Asia, alongside the Philippines, according to the report. The surge in digital payments in Vietnam is attributed to government support, investment from commercial banks, and the widespread popularity of QR codes, the report stated. The World Bank also anticipates a 1.7% growth rate in this context.
The report, which covers several Southeast Asian countries, including Indonesia, Thailand, Vietnam, Singapore, Malaysia, and the Philippines, indicates that private funding for digital economy-related sectors has returned to 2017 levels after reaching record highs in 2021. However, the report notes that cash reserves for investments continue to rise despite growing investor caution.
To navigate this funding adjustment, Southeast Asia’s digital businesses must demonstrate the availability of quality investment opportunities with clear exit strategies, the report suggests. This trend is aligned with global shifts towards a high cost of capital and challenges throughout the funding lifecycle. Venture capitalists were reported to have $15.7 billion available for investment deals at the end of 2022, according to the report.
Fock Wai Hoong, Head of Southeast Asia at Temasek, noted that the return of funding largely hinges on how swiftly companies can pivot towards profitability, emphasizing that a faster adaptation will facilitate the return of funding.
