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Google, Temasek, Bain & Co trim 2025 forecast for Southeast Asia digital economy by US$30 bil

Jovi Ho
Jovi Ho10/27/2022 11:38 AM GMT+08  • 5 min read
Google, Temasek, Bain & Co trim 2025 forecast for Southeast Asia digital economy by US$30 bil
As the “hottest investment country in the region”, Singapore's digital economy is expected to grow 22% to US$18 billion this year.
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Southeast Asia’s digital economy is approaching US$200 billion ($281.82 billion) in gross merchandise value (GMV) in 2022, three years earlier than initially forecast in 2016, say Google, Temasek and Bain & Company at the release of their annual e-Conomy Southeast Asia report on Oct 27.

Fuelling this surge are some 100 million additional internet users that have come online in the past three years, with the digital population reaching 460 million this year. The six Southeast Asian nations surveyed have a combined population of some 600 million.

Owing to near-term headwinds, however, the authors have cut their 2025 forecast for Southeast Asia’s internet economy to US$330 billion, down from US$360 billion projected last year.

Looking ahead, Southeast Asia’s digital economy is on track to grow 20% y-o-y on a CAGR basis between 2022 and 2025. The region’s digital economy could reach US$1 trillion by 2030, “provided it can unlock its full potential sustainably”, say the authors.

E-commerce continues to propel GMV growth in Southeast Asia, even after lockdown restrictions have ceased, growing 16% y-o-y to US$131 billion in GMV. Of this figure, only US$18 billion went towards groceries.

Just as countries in Southeast Asia embarked on a return to pre-pandemic normality, global headwinds started to blow, threatening to derail a full economic recovery, say the authors. “Rising interest rates and high inflationary pressure have also been impacting consumer demand, particularly the discretionary sectors that sit at the core of the digital economy.”

See also: Southeast Asia's internet economy to reach US$1 tril by 2030: Google, Bain & Temasek report

Digital adoption continues to rise even today, albeit at a slower pace than the steep acceleration seen at the height of the pandemic. “After years of acceleration, digital adoption growth is normalising,” say the authors. “The majority of digital players are shifting priorities from new customer acquisition to deeper engagement with existing customers.”

The report dives into five mainstay digital sectors: e-commerce, travel, food and transport, online media, and digital financial services. This year’s edition also features an inaugural section on environmental, social and corporate governance (ESG) considerations in Southeast Asia.

Google commissioned Ipsos to run a consumer survey across Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam; gathering responses from over 7,000 urban and suburban residents.

See also: Post-lockdown, eight in 10 Southeast Asians think tech is helpful: study

Meanwhile, Bain conducted interviews and a quantitative survey of 30 Southeast Asia-focused venture capital investors in the third quarter of the year.

Singapore ‘hottest in the region’

Among six Southeast Asian countries, Singapore is the “hottest investment country in the region”. The digital economy here is expected to grow 22% to reach US$18 billion this year, with the potential to reach some US$30 billion in 2025.

A third of this GMV growth will be driven by e-commerce — expected to hit some US$11 billion in 2025. Meanwhile, a recovery in online travel is expected to hit US$9 billion by 2025.

Approximately seven in 10 digital consumers here intend to maintain their use of e-commerce and online groceries platforms in the next 12 months. However, some three in 10 plan to reduce their use of digital transport services and food delivery.

Across gaming and video and music streaming, Singaporeans consume online media more regularly than their counterparts in the region.

To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section

Some 36% spend more than an hour per day on video streaming; compared to the Southeast Asia average of 23%; and 51% of Singaporeans stream videos at least once a week, compared to the Southeast Asia average of 33%.

Some 36% of Singaporeans game at least once a week, compared to 29% of the region’s respondents; while 23% of Singaporeans spend more than an hour gaming each day, compared to 18% for the region.

Singapore, alongside Indonesia, remains one of two primary investment destinations in the region, with deal value growing from US$4 billion in 1H2021 to US$7 billion in 1H2022.

Digital financial services continue to attract the most investor interest, making up 25% of Singapore’s investment pool at US$1.9 billion in 1H2022. With 50% of venture capital firms expecting deal activity in Singapore to increase in the long term, it will continue to be a regional investment hub with a strong pipeline of start-ups and access to a wide variety of capital sources.

Interest in sustainability among Singaporeans has grown 2.8 times in two years, though only 32% of Singaporeans are willing to spend 5% more for a sustainable product or service — the least in the region.

The report also found that while 23% of local consumers considered sustainability a top criteria when making a packaged food purchase, just 14% would act on their intentions. However, Singapore makes up the smallest “say-do” gap at 9% compared to the rest of Southeast Asia.

Singapore is well-placed to play a leading role in the growth of Southeast Asia’s digital economy and ESG adoption, says Stephanie Davis, vice-president of Google Southeast Asia. “Sustainability is the responsibility of all stakeholders and we want to continue forging the right partnerships and introduce meaningful initiatives that contribute to Singapore’s sustainable and inclusive digital future.”

As a tech hub and regional gateway for funding and talent, Singapore will continue to play a pivotal role in the next phase of growth in Southeast Asia’s digital decade, says Fock Wai Hoong, deputy head, technology and consumer and Southeast Asia at Temasek. “Singapore’s vibrant ecosystem provides a conducive environment to nurture financial, natural, social and human capital innovations that are crucial in developing a sustainable digital economy.”

Amid headwinds faced by Asian rival city Hong Kong, Singapore’s digital economy will continue its robust growth trajectory, says Florian Hoppe, partner and head of digital practice in Asia-Pacific at Bain & Company. “Competition within the digital financial services landscape will further intensify, and the growth to 2025 will be driven by digitalisation of investments and lending via digital banks and fintechs.”

Infographic: Google, Bain & Company, Temasek

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