The pandemic brought with it disrupted supply chains and a slowdown in demand in the Asia Pacific region, like it did elsewhere. Mechanisms to cope and respond to the crisis varied significantly among countries in the region. Comparatively, Southeast Asia was quicker to emerge from the pandemic, given its past experience in dealing with SARS and its robust policy framework.
A recently published report by Meta and Bain & Company reveals that Southeast Asia is expected to project a real GDP growth of 5.1% in 2023 against an estimated annual inflation rate of 3.3%. As compared with the US, China and the EU, the region shows signs of robust economic growth.
Factors such as growth in working age population will contribute to growing consumption in the region. Upper middle-class households will grow from 49 million to 71 million between 2021 to 2030; while high class households will increase from 12 million to 41 million in the same period.
The rising working age population with growing incomes is quick to adopt new digital trends. The region’s smartphone penetration is expected to cross the 97% mark in 2022. The number of digital consumers in the region is projected to reach 370 million in 2022 – an addition of 28 million people. And this figure is projected to rise further to 402 million by 2027.
Exhibit 1: Digital adoption of Southeast Asia population (million) (15-years-old and above)
E-commerce sales in the region is rising, despite slower growth y-o-y. Gross merchandise value (GMV) of e-commerce sales in the region grew by 48% between 2020 to 2021, but post that, between 2021 to 2022, e-commerce GMV growth is only 15%. But by 2027, e-commerce GMV in the region is expected to register $280 billion.
Factors such as high inflation, ongoing supply chain pressures, coupled with easing of offline restrictions are slowing down the bull run of e-commerce sales in the region. Nonetheless, average online basket size has risen from $52 to $56 between 2021 to 2022, in the SEA-6 (Indonesia, Malaysia, Singapore, Philippines, Thailand and Vietnam).
The average contribution of online retail to total retail is expected to grow from 9% in 2021 to 11% in 2022 – representing a 16% growth as compared with 10% growth in India and 4% growth in China. This markedly shows a growing push towards online buying among Southeast Asian consumers.
Exhibit 2: Online retail penetration in Southeast Asia continues to grow
Two distinct digital nations
Future tech such as fintech, metaverse, healthtech and edtech are at varying degrees of maturity in the region. If we take the case of metaverse-related tech we see the penetration of cryptocurrencies strongest in the Philippines, followed by Thailand, Vietnam and Indonesia.
Exhibit 3: Penetration of metaverse-related tech by country (%)
Meanwhile, in the area of fintech, we see Singapore and Indonesia dominating investment deal values in the region.
Exhibit 4: Southeast Asia investment deal value ($ billion, H1 2022)
Going forward—pushed by robust policy framework—we will see significant growth in the region, particularly in the emerging tech categories of fintech and e-commerce. Major breakthroughs are expected in blockchain technology and the metaverse.