Over the next decade, Southeast Asia should outpace China in GDP growth and foreign direct investment. This report deep dives into the economic outcomes of the top six economies in the region, presents a forecast for the 10 years, and opportunities to accelerate that growth.
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Southeast Asia can expect healthy growth in the next decade, with a growth rate that outpaces China
In the last decade, Southeast Asia lost out because it was out-invested, out-competed and sub-scale. To capture its full potential, Southeast Asian countries need to address gaps in traditional growth drivers, improve on labor and capital, and their productivity .
Historical average
Forecast
SEA-6
5.1%
5.3%
2.6%
5.1%
Vietnam
Positive drivers
Export-oriented economy well-positioned to capture “China + 1” opportunities
Highly diverse sources of FDI
Productive inter-provincial competition
High-quality workforce and education levels
Negative drivers
Collateral impact of anti-corruption campaign
Cyclical slowdown and credit weakness
Pace of infrastructure spend falling short
Energy and water shortages
Slow movement on green infrastructure
Philippines
Positive drivers
Pro-growth administration
Prioritized infrastructure investments, with renewable projects garnering interest from FDI investors
Growing population and workforce
Negative drivers
Traditional growth drivers lagging other SEA countries (education, infrastructure, government effectiveness)
Geopolitics, especially tensions with China, might escalate, disrupting recovery
Indonesia
Positive drivers
Booming base metal processing, mining, and infrastructure sectors
Increasing infrastructure spend
Leading in entrepreneurial, tech-enabled disruption
Growing population and workforce
Negative drivers
Low manufacturing value-added activity, beyond commodities
Declining commodity prices
Potentially more populist stance
May further embrace protectionist slant
Malaysia
Positive drivers
Shifting to pro-growth stance to attract FDI
Past success with electronics, semiconductors and data centers paying off
Willingness to pursue structural reforms, e.g., subsidy cuts
Potential benefits from cooperation with Singapore
Negative drivers
Shifting political coalitions, policy shifts and weak government mandates
Slow and steady talent drain
Fallout from not fulfilling long-term investment commitments (e.g. high-speed rail link)
Thailand
Positive drivers
Green shoots in tourism rebound
A key regional automotive hub with well connected infrastructure
Conglomerates (CP, Central, PTT, Siam Cement, Thai Union) are more regional than Southeast Asian peers
Negative drivers
Uncertain and turbulent political landscape
Concerning consolidation in key sectors (retail, telecommunications)
Demographic challenges
Singapore
Positive drivers
Open and diverse economy, with strengths in advanced manufacturing, services, and tourism
World-class talent from every major economy attracted to safe, stable environment
Well-funded government efforts to nurture growth
Negative drivers
Demographic challenges; immigration offset faces political hurdles
Land and labor constraints
High business costs vs. SEA-6 peers
SEA-6
Positive drivers
Benefitting from China + 1
Third largest global “market” with 600 million + consumers
Strong historical linkages with all major trading economies in the world
Geographic position in Asia, almost half of world population
Negative drivers
Needs to be approached as individual country markets
Increased protectionism in developed markets
Gradual deindustrialization due to changing drivers of competitiveness
With sustained policy change and a willingness to take risks, Southeast Asia can raise its forecasted growth rates by seizing opportunities from five areas. These require strategy insights, policy changes, good governance, redirection of resources and risk-taking.
Prioritize emerging sectors that fit with established clusters, workforce capabilities, and natural resources
Stimulate sustained investment across multiple participants
Invest heavily in workforce skills and infrastructure
Develop government capabilities
Southeast Asian countries are competing for next-generation sectors; a few winners are emerging
Cumulative FDI value committed to SEA for key growth sectors
Thailand and Indonesia likely to emerge as winners, given their strong OEM base, government support on EV, and market size
Indonesia’s EV development is driven by growth in EV battery sector and government incentives for sales and manufacturing
9
5
0
0
1
0
Indonesia likely to continue outperforming other SEA countries given its abundant nickel reserves, strict regulations, incentives, and mandates
3
26
0
3
2
0
Malaysia and Singapore are leading in different parts of the value chain; Singapore has competitive edge in wafer fabrication (which requires more advanced skills), while Malaysia leads in packaging and testing
1
2
3
21
6
17
Malaysia, Thailand, and Indonesia are attractive—Malaysia/Thailand for their reliable infrastructure, Indonesia for its growing digital economy and stricter data protection
Singapore’s relatively absent data center investments reflect the 2019–22 moratorium on new data center projects
9
7
1
10
0
1
Provide low-cost, stable, accessible, regionally connected digital infrastructure
Support co-location of stakeholders critical to a robust ecosystem of innovation and entrepreneurship
Ensure enabling government policies: pro-competition, easy movement of talent, encouraging financial regulations to set up businesses
Around 30–40% of Southeast Asia economic sectors will be impacted by TEDs
Low degree of impact
Mid degree of impact
High degree of impact
Indonesia
1371
GDP by country and industry
(2023, USD billion)
29.3%
Percentage GDP of Sectors with High Impact from TEDs
Other
Goverment Services
Real Estate and Constrution
Manufacturing & Utility
Agriculture & Mining
Education and Health
Transport & Logistics
Financial Sevices
Consumer and Retail
% of GDP of Sector
0%
20%
40%
60%
80%
100%
Thailand
515
GDP by country and industry
(2023, USD billion)
42.1%
Percentage GDP of Sectors with High Impact from TEDs
Other
Goverment Services
Real Estate and Constrution
Manufacturing & Utility
Agriculture & Mining
Education and Health
Transport & Logistics
Financial Sevices
Consumer and Retail
% of GDP of Sector
0%
20%
40%
60%
80%
100%
Philippines
437
GDP by country and industry
(2023, USD billion)
43.9%
Percentage GDP of Sectors with High Impact from TEDs
Other
Goverment Services
Real Estate and Constrution
Manufacturing & Utility
Agriculture & Mining
Education and Health
Transport & Logistics
Financial Sevices
Consumer and Retail
% of GDP of Sector
0%
20%
40%
60%
80%
100%
Singapore
501
GDP by country and industry
(2023, USD billion)
48.1%
Percentage GDP of Sectors with High Impact from TEDs
Other
Goverment Services
Real Estate and Constrution
Manufacturing & Utility
Agriculture & Mining
Education and Health
Transport & Logistics
Financial Sevices
Consumer and Retail
% of GDP of Sector
0%
20%
40%
60%
80%
100%
Malaysia
400
GDP by country and industry
(2023, USD billion)
34.8%
Percentage GDP of Sectors with High Impact from TEDs
Other
Goverment Services
Real Estate and Constrution
Manufacturing & Utility
Agriculture & Mining
Education and Health
Transport & Logistics
Financial Sevices
Consumer and Retail
% of GDP of Sector
0%
20%
40%
60%
80%
100%
Vietnam
420
GDP by country and industry
(2023, USD billion)
32.1%
Percentage GDP of Sectors with High Impact from TEDs
Other
Goverment Services
Real Est. & Constrution
Manufacturing & Utility
Agriculture & Mining
Education and Health
Transport & Logistics
Financial Sevices
Consumer and Retail
% of GDP of Sector
0%
20%
40%
60%
80%
100%
Encourage growth of diversified players to ensure efficient capital allocation
Increase stock exchange attractiveness to facilitate successful exits
Increase household participation in financial markets Support new companies and financing of SMEs
Ensure safeguards in place to avoid fraud and overspeculation
Singapore, Malaysia, Thailand lead the IMF Financial Development (FD) Index Trends; Singapore’s score has dropped since 2010
Financial Development Index
(2010 and 2021, overall score)
Indonesia saw a significant improvement, driven by its increase in branchless and digital banking solutions to rural areas
The Philippines has made slight progress across most of the dimensions (except for stock market performance)
Vietnam encountered a decrease in FD Index, driven by poor stock market performance
Singapore’s Index is high at above 0.7, reflecting its financial center status; however, its score dropped between 2010 and 2021, driven by poor stock market performance
Malaysia saw gains in financial market depth and efficiency, driven by stock market capitalization and performance
Thailand has seen the most increase, driven by access to credit and stock market capitalization
Prioritize easier wins
Improve access to low-cost energy with climate, economic, and energy security benefits
Upgrade national grids to renewables and work towards an interconnected regional grid
Encourage government-led catalytic financing and other financial innovation for non-commercially viable opportunities
Establish meaning carbon taxes and purposeful private-public partnerships for capital investment into greener energy
Southeast Asia is well-endowed with natural resources and green potential
of the world’s known plant and animal species are found in SEA
total area of forests in Southeast Asia
SEA’s potential contribution to the world's carbon offset supply
total solar power potential in Southeast Asia
total wind power potential in Southeast Asia
total hydro power potential in Southeast Asia
of global nickel production is in Indonesia and the Philippines
of global tin production is in Southeast Asia
of global bauxite reserves are in Southeast Asia
More needs to be done to accelerate investments
1
Policies and incentives to further push transition and green investments
2
Innovative finance mechanisms to facilitate more capital flow
3
Scaling corporate investment to establish future-ready businesses
4
Cluster/pilot developments to scale technological development
5
Regional collaboration to drive coordinated SEA strategy
Strengthen existing trade agreements and alliances such as key ASEAN initiatives or RCEP
Prioritize key growth-enabling initiatives that benefit from a regional approach
Common standards
Unified electrical grid
Digital payments
Carbon markets
Given its institutional set-up and diversity, Southeast Asia need not envision itself as a common market
Each country should commit to its own policy upgrades. Specific multilateral initiatives could meaningfully increase the number of opportunities the region has access to.
Southeast Asia would benefit from freer movement of people, capital, and goods in the region and with partners.
A harmonized digital landscape could boost cross-border trade and innovation. Southeast Asia would benefit from system interoperability and recognized cross-border standards and policies. If successful, current initiatives under the ASEAN, such as the Digital Economy Framework Agreement (DEFA), could improve interoperability for businesses in the region.
As Southeast Asia looks to attract key investments in growth sectors such as data centers and semiconductors, it faces significant pressures on energy demand, energy costs, and its environment. Enabling green practices will ensure sustainable growth and resilience. The region needs to prioritize renewable integration into its energy grids through the ASEAN Energy Grid. Developing a regional carbon market could help Southeast Asia manage some of these challenges.
Much of the world is bracing for slower growth, but in Southeast Asia tailwinds should prevail
This is the right moment for Southeast Asia to leverage its newly improved investment climate and well-established, dynamic sectors. Southeast Asia is comprised of diverse markets. While there are important links between markets and opportunities to pursue regional approaches, each country’s potential must be addressed individually.
While many economists focus on FDI as the key barometer for confidence in an economy, we assign substantial weight to domestic investment. Most Southeast Asian countries are seeing robust growth of domestic investment, which underscores local confidence in the region’s growth prospects relative to alternatives.
Effective government action will play a role in catalyzing growth. Entrepreneurism plays a critical role in fully realizing growth potential.
We say, let’s unfurl the mainsails.
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