August 5, 2024
BANGKOK – The region’s top six economies – Vietnam, the Philippines, Indonesia, Malaysia, Thailand, and Singapore (SEA-6) – are projected to grow at an average annual rate of 5.1%, outperforming China.
A key factor driving this surge is a significant increase in FDI. For the first time in a decade, Southeast Asia attracted more FDI than China in 2023. Southeast Asia’s FDI amounted to US$206 billion while China received $43 billion. This represents a 37% growth in FDI for Southeast Asia between 2018 and 2022, compared to China’s 10%.
While Southeast Asia has historically lagged behind economic powerhouses like China and India, it is now positioned for a period of rapid growth. The report highlights several factors contributing to this transformation:
- Strong domestic investment: Businesses are increasingly investing in Southeast Asia, fuelling economic expansion.
- Diversified economy: The region is expanding beyond traditional industries, with growth in sectors like technology, manufacturing, and services.
- Favourable demographics: Countries like the Philippines are benefiting from a young and growing population.
Vietnam is leading the region’s growth, followed closely by the Philippines and Indonesia. Vietnam and the Philippines are expected to exceed 6% growth, with Indonesia close behind at 5.7%. Malaysia follows at 4.5%, while Thailand and Singapore are projected to grow at 2.8% and 2.5%, respectively.
Taimur Baig, DBS Bank managing director and chief economist, expressed optimism about the region’s prospects.
Transition from resurgence to growth
The Philippines is set for robust growth at 6.1%, driven by a government committed to development, especially in infrastructure and renewable energy projects.
Unlike Singapore and Thailand, the Philippines stands to gain from its favourable demographics.
Indonesia’s economy is predicted to expand by 5.7%, with room for even higher growth. This potential stems from its rich natural resources, growing population, and vibrant startup scene.
To fully capitalise on these advantages, Indonesia needs to broaden its economic base beyond raw materials and foster a more open, competitive business environment.
Malaysia’s projected 4.5% growth rate is underpinned by its renewed focus on attracting foreign investment, particularly in established sectors like semiconductors.
The country is also well-positioned to benefit from spillover effects from Singapore, notably in the expanding data centre industry.
In fact, Malaysia could potentially more than double Singapore’s current data centre capacity, challenging the city-state’s regional dominance in this sector.
While Thailand’s growth forecast is more modest compared to its regional counterparts, the country still holds considerable promise.
Its economic strengths include a recovering tourism industry, a well-established position as a regional automotive manufacturing hub with solid infrastructure, and the presence of conglomerates with a strong regional focus, the report said.
Looking ahead, to accelerate growth, the experts pointed out that SEA-6 needed to adopt strategies to redirect resources, make bold policy changes and take risks in some issues such as infrastructure development, education, and environmental sustainability to fully realise its potential.
The report also identifies five key opportunities to accelerate growth in the region. These include investing in emerging growth sectors, encouraging technology-enabled disruptors, strengthening capital markets and increasing investment, accelerating the green transition, and supporting multilateral initiatives.