In a global economy facing a protracted period of weak growth and high inflation, Southeast Asia is a rare reason for optimism, with strong fundamentals, accelerating growth and a bright future. By Surendra Rosha, co-chief executive of HSBC Asia-Pacific
The region showcased its potential recently when it hosted global leaders for both the APEC meeting in Bangkok and the G20 Summit in Bali.
Southeast Asia is primed for growth. Amid a flood of global downgrades, the Asian Development Bank’s September Outlook upgraded its forecast for the region’s GDP growth from 4.9% to 5.1%. We expect Thailand, Singapore, Indonesia, the Philippines, Malaysia and Vietnam to grow by 3.2% to 7.6% this year despite economic uncertainties and volatility.
This strength is belatedly winning Southeast Asia the economic recognition it deserves. In 2022, we surveyed 1,500 companies from China, France, Germany, India, the US and the UK, and found that 90% of foreign companies operating in the region plan to grow their presence over the next two years. Two-thirds expect organic growth of 20% or more over the next 12 months.
Internationalism is key
Southeast Asia has embedded itself in a matrix of beneficial trade deals, both within Asia and with Europe and North America. It sits at the crossroads of two of the world’s largest Free Trade Agreements: the Regional Comprehensive Economic Partnership (RCEP), which covers all of Southeast Asia, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), with Malaysia, Singapore and Vietnam as members.
Its bold embrace of openness and internationalism is already paying dividends: the 10-member Association of Southeast Asian Nations (Asean) is the world’s fastest-growing trade bloc and now accounts for almost 8% of global exports. In terms of inbound foreign direct investment, Asean now accounts for around 10% of the global total, almost on par with mainland China.
But these gains are under threat as protectionist forces gather strength, particularly in developed economies. The APEC and G20 meetings were perfect venues for global leaders to recommit to the principles of free trade and multilateralism that have delivered astonishing improvements in standards of living in developed economies and lifted billions out of poverty in developing markets over the past 50 years.
Driving much of the international interest are the three Ds: Demographics, Digital and Dynamism.
Southeast Asia has 680 million people: 50% more than the EU and more than twice as many as the US. And it is a population that has become increasingly affluent and educated, with an increasingly skilled workforce and competitive wages. A young, upwardly mobile population means a growing consumer class in the years to come. According to a World Economic Forum report on Asean, Southeast Asia will add about 140 million new consumers by 2030.
And those new consumers are going to be empowered and connected by increasingly sophisticated digital opportunities. A joint report to Google, Temasek and Bain & Co found that its population is also coming online at a breakneck pace. An estimated 40 million new internet users came online in 2020 and 2021 and eMarketer projected that the region’s e-commerce sales would grow at 21% — the fastest in the world — to total US$90 billion this year.
Wealth creation is being amplified by a region that has always been entrepreneurial, but now has the resources to invest in business growth. For instance, wealth in Thailand is expected to grow by almost 60% between 2022 and 2030, with the number of millionaires expected to double within the same period, according to HSBC’s research.
Despite talk of a global recession, many Southeast Asian economies are recovering strongly from the pandemic. And as the world gradually returns to normal and travel restrictions ease, this region will likely get a significant boost, especially for tourism-heavy economies such as Thailand.