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Economy slows as consumers curb spending

Economy slows as consumers curb spending

Growth in Southeast Asia’s internet economy is slowing after years of expansion, showing that even emerging digital markets aren’t immune to economic headwinds.

Online spending in the region will rise about 20% this year to $200 billion, research from Google, Temasek Holdings Pte and Bain & Co showed, slowing from 38% a year earlier. The region’s internet economy is set to reach US$330 billion by 2025, according to the report, down from a previous forecast of $363 billion.

This is the first time estimates have been revised downward in the companies’ annual report, which covers Singapore, Indonesia, Malaysia, Thailand, Vietnam and the Philippines.

Even as the region’s consumers are adopting mobile and online services at a rapid clip, they are curbing spending amid accelerating inflation and rising interest rates — just like their peers globally.

“After years of acceleration, digital adoption growth is normalising,” the companies said in a release. “The majority of digital players are now shifting priorities from new customer acquisition to deeper engagement with existing customers to increase usage and value.”

Southeast Asia, home to Alibaba Group Holding Ltd’s Lazada and Sea Ltd’s Shopee, will see a 17% increase in e-commerce gross merchandise value this year, slowing sharply from pandemic highs as consumers become more cautious. Online shopping is now forecast to hit $211 billion in 2025 versus a previous $234 billion prediction, making up 64% of the region’s total estimated digital GMV, the research showed.

E-commerce, financial services and travel are among leading sectors driving the region’s digital growth, the report showed. Southeast Asia is adding about 20 million new digital consumers in 2022.

The number of deals involving tech companies in the region remained relatively steady at about 1,200 in the first half of this year compared with a year-earlier period, according to the report. Early-stage investments are increasing, while later-stage deals are getting hit by dimmer public listing prospects in the capital markets. Southeast Asia venture capital funds held about $15 billion in “dry powder” at the end of 2021, down from $16 billion a year earlier.

Indonesia remains the region’s largest digital economy where online spending is predicted to rise to $130 billion by 2025. Vietnam is expected to grow at the fastest rate among the six countries tracked by the study, more than doubling in online GMV over the next three years.

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