Southeast Asia’s internet economy will log its slowest growth since 2017 this year, researchers said on Wednesday, as they reduced near-term e-commerce spending estimates for the region by 13%.
Total online spending in the region will rise by about 11% this year to $218 billion, said the e-Conomy SEA 2023 report published by Google, Temasek Holdings and the consultancy Bain & Co. That is down from 20% a year earlier and the lowest rate since 2017.
The forecast for the value of the internet economy in 2025 has also been revised down to $295 billion, from a previous estimate of $330 billion. The biggest single category, e-commerce, is now projected to be worth $186 billion in 2025, down from $211 billion estimated previously.
“Digital economy sectors are showing positive growth trajectories, with travel and transport on track to exceed pre-pandemic levels by 2024,” they said in a joint statement.
The internet economy in Thailand is expected to be worth $36 billion this year, a 16% improvement from 2022, with 17% average annual growth forecast from 2023-25 to a total value of $49 billion, the report said.
“Thailand has observed rapid growth in digital infrastructure since the pandemic, benefiting the digital economy at large,” the report notes. “It currently has the largest subscription video-on-demand market in Southeast Asia. Despite requirements for localised content, Thai consumers are very willing to purchase video- and music-on-demand subscriptions.”
The pared-back forecast for the region mainly reflects to a long-term goal change and a post-pandemic stabilisation, and expansion should now be on a fairly steady path towards 2025, said Florian Hoppe, partner and head of Vector in Asia-Pacific at Bain
Home to 670 million people with a predominantly young population, widespread smartphone usage and a growing middle class, Southeast Asia is one of the world’s fastest growing internet markets.
The report focuses on six major economies — Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam — with a total population of 605 million.
Consumers in the region are curbing spending to cope with elevated inflation and interest rates, it noted. Meanwhile, competition is intensifying. Global giants like Amazon.com and Alibaba as well as regional players Grab, Sea and GoTo are vying for a slice of markets from online retailing to food delivery and ride hailing.
Even as more people in Southeast Asia come online, a bulk of the region’s spending still comes from relatively wealthier consumers in major cities. The top 30% high-value users account for more than 70% of digital economy transaction values, the report said, signalling that internet companies are struggling to attract potential customers in more remote regions.
Vietnam’s digital economy is expected to grow by 20% a year in the 2023-25 period and is on track to reach around $45 billion by 2025, the fastest in Southeast Asia along with the Philippines, according to the report.
“Digital payment continues to grow in Vietnam driven by strong support from the government, investment from commercial banks, and the widespread popularity of QR codes,” the report said.
The trend is expected to accelerate as the country’s central bank promotes cashless payments in rural and remote areas, it added.
The report said private funding for digital economy-related sectors has declined to 2017 levels from record highs in 2021. But cash reserves for investments are still rising despite investors becoming increasingly cautious.
“To exit this funding winter, Southeast Asia’s digital businesses need to prove that quality deals with visible exit pathways are readily available,” it said, adding that the decline is in line with global shifts towards high cost of capital and issues across the funding life cycle.
Venture capitalists had $15.7 billion on hand to drive deals at the end of 2022, according to the report.
“It’s really a function of how quickly companies can pivot towards profitability. The sooner they play this out, the quicker funding will return,” said Fock Wai Hoong, head of Southeast Asia at Temasek.