A recent annual industry report from Google, Temasek Holdings, and Bain & Company reveals that the growth of Southeast Asia’s internet economy in 2023 is expected to slow down to 11%, a notable decline from the previous year’s growth rate of 20%. Additionally, the estimated value of the region’s internet economy for 2025 has been revised down from $330 billion to $295 billion.
The authors of the report, in a joint statement, pointed out that certain digital economy sectors are showing promising growth trends. Notably, the travel and transport sectors are 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 toward 2025.
Southeast Asia is a dynamic region with 11 countries, a population of over half a billion people, a predominantly young demographic, widespread smartphone adoption, and a growing middle class. It is considered 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. 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 covers several Southeast Asian countries, including Indonesia, Thailand, Vietnam, Singapore, Malaysia, and the Philippines. It 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, as the report suggests. This trend aligns with global shifts toward a high cost of capital and challenges throughout the funding lifecycle. According to the report, venture capitalists had $15.7 billion available for investment deals at the end of 2022.
Fock Wai Hoong, Head of Southeast Asia at Temasek, emphasized that the return of funding largely depends on how quickly companies can pivot towards profitability, highlighting that a faster adaptation will facilitate the return of funding.