- The Southeast Asian internet economy is set to reach $200 billion in total value of transactions made this year, three years earlier than projected, according to a new report from Google, Temasek Holdings and Bain & Company.
- New internet user growth slowed down in 2022 at 4% from 2021 to 2022, as compared to a 10% increase the year before.
- Investments maintained strong momentum in the first half of 2022, but investors are increasingly cautious. However, they remain vested in the region.
South East Asia’s top digital economies grew faster than expected in 2022 and are set to reach $200 billion in total value of transactions made this year, according to a new report by Google, Temasek and Bain & Company.
The milestone comes three years ahead of earlier projections and is a 20% increase from last year’s $161 billion in gross merchandize value (GMV). An earlier report in 2016 estimated the internet economy in the region’s six major countries will close in on $200 billion in GMV by 2025.
The six major economies covered in the report are: Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. The report did not address the populations of Brunei, Cambodia, Laos and Myanmar, as well as East Timor and Papua New Guinea.
“After years of acceleration, digital adoption growth is normalising,” said the report released Thursday.
Southeast Asia continues to see growth in the number of internet users — with 20 million new users added in 2022, raising the total number of users to 460 million.
However, that growth is starting to slow, and was just 4% in 2022 compared to a year ago. That’s compared to a 10% year-on-year increase in 2021 and 11% growth in 2020, at the height of the coronavirus pandemic.
Growth drivers
E-commerce continues to drive the growth in the region despite the resumption of offline shopping as pandemic lockdowns lifted. GMV in the sector grew 16% to $131 billion in 2022.
However, the next three years may see a slowdown, the report said, projecting growth in the sector to e-commerce to grow at a 17% CAGR from 2022 to 2025.
“E-commerce continues to accelerate, food delivery and online media are returning to pre-pandemic growth levels, while travel and transport recovery to pre-COVID levels will take time,” the report said.
Another growth driver, digital financial services, which includes payments, remittances, lending, investments and insurance, have seen healthy growth from 2021 to 2022, thanks to offline-to-online behavior shifts post-pandemic, wrote the report. Among these services, insurance recorded the highest, growing 31% year-on-year while lending grew 25% year-on-year.
“As we have opened back up post-pandemic, mobility in retail places has actually surpassed pre-pandemic [levels] in multiple countries. Yet, the digital economy still grew by 20% year-on-year. And that signifies that a lot of the adoption that took place during the pandemic is here to stay. Some new habits have been formed,” Stephanie Davis, vice president at Google Southeast Asia, said on CNBC’s “Street Signs Asia.”
Growth in digital adoption slows
After years of acceleration, digital adoption growth is normalizing, wrote the same report. This happens as Southeast Asian economies reopened their borders in 2022 after prolonged lockdowns and consumers resumed their shopping offline.
In addition, current macroeconomic conditions such as surging inflation rates have impacted Southeast Asian consumers and the digital economy. The report cited rising prices, lower disposable income due to a slowdown, as well as consumers having less access to products as supply chains are disrupted while production backlogs build up, in part due to China’s zero-Covid policies.
Southeast Asia’s online economy is still on track to reach $1 trillion by 2030 as online shopping becomes the norm, according to the report.
Overall, the internet economy in the six countries is predicted to reach $330 billion by 2025 if companies put a greater focus on profitability for the next three years. Some of Southeast Asia’s biggest unicorns such as Grab and Sea Limited have yet to record a profit, amassing billions in losses in 2021.
“The rising rate environment has led to us to conclude that growth-at-all-costs strategy is no longer a viable strategy. Investors are continuing to pivot towards profitability, free cash flow and normalized profit margins. Finding the right balance and calibrating between cost optimization and top line growth is something that all companies have to work through,” Fock Wai Hoong, Temasek’s technology and consumer deputy head, said on CNBC’s “Street Signs Asia.”
“Investors will be cautious in the short-term as most do not expect a return to 2021 deal activity and valuation peaks in the next couple of years.” (e-Conomy SEA 2022 report)
All six countries are set to post double-digit growth in GMV from 2022 to 2025.
Vietnam is in the lead and set to post a 31% growth in GMV from $23 billion in 2022 to $49 billion in 2025, the report showed. The Philippines is right behind with an expected 20% growth in GMV, from $20 billion in 2022 to $35 billion in 2025.
Cautious investors
There was continued strong momentum in investments in the first half of 2022, but investors are becoming more prudent. “Investors will be cautious in the short-term as most do not expect a return to 2021 deal activity and valuation peaks in the next couple of years,” the report said.
Source: cnbc, Bloomberg, economySEAReport2022
