Southeast Asia’s top digital economies set to hit $200 billion in 2022, report says

SINGAPORE — Southeast Asia’s major digital economies grew faster than expected in 2022 and are expected to reach $200 billion in total transaction value this year, according to a new report from Google, Temasek and Bain & Company.

The milestone comes three years ahead of previous projections and represents a 20% increase from last year’s gross merchandise value (GMV) of $161 billion. An earlier report from 2016 estimated that the internet economy in the six major countries in the region would reach $200 billion GMV by 2025.

The six major economies covered in the report are: Indonesia, Malaysia, 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 normalizing,” the report released Thursday said.

Southeast Asia continues to see growth in the number of internet users – with 20 million new users added in 2022, bringing the total number of users to 460 million.

However, this growth is starting to slow down and was only 4% in 2022 compared to a year ago. This compares to a 10% year-over-year increase in 2021 and 11% growth in 2020, at the height of the coronavirus pandemic.

E-commerce continues to drive growth in the region despite the resumption of offline shopping with the lifting of pandemic lockdowns. The GMV of the sector increased by 16% to reach $131 billion in 2022.

However, the next three years could see a downturn, according to the report, which forecasts the e-commerce industry to grow at a CAGR of 17% from 2022 to 2025.

“E-commerce continues to accelerate, food delivery and online media are returning to pre-pandemic growth levels, while the recovery of travel and transportation to pre-COVID levels will take time,” the report said. .

Another growth driver, digital financial services, which includes payments, remittances, loans, investments and insurance, saw healthy growth from 2021 to 2022, driven by post-pandemic offline behavior changes , writes the report.

Among these services, insurance recorded the strongest growth of 31% year-on-year, while lending increased by 25% year-on-year.

“As we reopened post-pandemic, mobility in retail locations has actually surpassed pre-pandemic levels. [levels] in many countries. Yet the digital economy still grew 20% year over year. And that means much of the adoption that’s happened during the pandemic is here to stay. New habits formed,” Stephanie Davis, vice president of Google Southeast Asia, told CNBC’s “Street Signs Asia.”

After years of acceleration, the growth of digital adoption is normalizing, writes the same report. It comes as Southeast Asian economies reopened their borders in 2022 after prolonged shutdowns and consumers resumed shopping offline.

Additionally, current macroeconomic conditions such as soaring inflation rates have impacted Southeast Asian consumers and the digital economy. The report cites rising prices, falling 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, partly because of China’s zero Covid policies.

Southeast Asia’s online economy is still on track to reach $1 trillion by 2030, with online shopping becoming the norm, according to the report.

Overall, the Internet economy in the six countries is expected to grow to $330 billion by 2025 if companies focus more on profitability over the next three years. Some of Southeast Asia’s biggest unicorns such as To input and Sea Limited have yet to post a profit, racking up billions in losses in 2021.

“The rising rate environment has led us to conclude that the growth-at-all-costs strategy is no longer a viable strategy. Investors continue to focus on profitability, free cash flow and normalized profit margins. Striking the right balance and calibrating between cost optimization and revenue growth is something all companies need to work on,” said Fock Wai Hoong, Deputy Director of Technology and Consumers at Temasek, on CNBC’s “Street Signs Asia”.

All six countries are expected to post double-digit GMV growth from 2022 to 2025.

Vietnam leads the way and is expected to show 31% GMV growth from $23 billion in 2022 to $49 billion in 2025, according to the report. The Philippines is close behind with an expected 20% growth in GMV from $20 billion in 2022 to $35 billion in 2025.

The strong investment momentum continued in the first half of 2022, but investors are becoming more cautious.

“Investors will be cautious in the near term as most do not expect a return to 2021 trading activity and valuation spikes over the next two years,” the report said.

“Nevertheless, most investors remain optimistic about SEA’s medium to long-term potential,” but venture capitalists remain invested in the region with $15 billion of dry powder to back the deals, the report continues.

“We are seeing growing interest in emerging markets, such as the Philippines and Vietnam, and nascent industries, such as SaaS and Web3.”

According to the report, early stages are booming, while late-stage investments are impacted by weak IPO prospects.

Singaporean carpooling and food delivery giant Grab made its less-than-stellar stock debut at the end of 2021, despite being the largest initial public offering by a company in Asia Southeast in United States history.

FinAccel – the parent company of Indonesian buy-it-now, pay-later platform Kredivo – canceled plans for an IPO in October due to unfavorable market conditions.