Southeast Asia set to outpace China in GDP and FDI growth

KUCHING: Southeast Asia is likely to outpace China in gross domestic product (GDP) and foreign direct investment (FDI) growth over the next decade, according to the ‘Navigating High Winds: Southeast Asia Outlook 2024 – 34’ report released by the Angsana Council, Bain & Company, and Development Bank of Singapore Limited (DBS) Bank.

It stated that the GDP of the top six economies in Southeast Asia (SEA-6) (Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam) is projected to grow at an annual rate of 5.1 per cent on average with Vietnam and the Philippines driving the region’s growth, each expected to exceed 6 per cent, and Indonesia tailing close at 5.7 per cent.

“For the first time in a decade, SEA-6 has attracted more FDIs than China. In 2023, SEA-6’s FDI amounted to USD206 billion while China recorded USD43 billion. Between 2018 and 2022, SEA-6 grew its FDI by 37 per cent, compared to China’s 10 per cent,” it said based on the report released, Thursday (Aug 1).

According to it, over the past 30 years, Southeast Asia’s GDP growth has been moderate, with Vietnam succeeding as the regional leader in most metrics and that SEA-6 grew significantly slower than China or India.

“Between 1993 and 2003, real GDP growth in the SEA-6 countries averaged 3.8 times. In comparison, China experienced a much higher GDP growth of 11 times, while India saw a growth rate of 6.6 times.

“One notable aspect is that most Southeast Asian countries saw their manufacturing value-added (MVA) as a share of GDP peak in the 2000s. The region then ‘prematurely de-industrialised’ as China became more competitive.

“Yet, Southeast Asia has improved its fundamentals for a resurgence in growth,” it said.

It added that Southeast Asia’s domestic capital formation is increasing steadily, reflecting businesses’ confidence in most countries in the region.

In the past decade, it said, the region has strengthened its key sectors such as export-oriented manufacturing, semiconductor packaging, and attracted investments in growth sectors such as data centres.

“The rise of technology-enabled disruptors (TEDs) has introduced increased competition and innovation even in traditional sectors of the economy. Countries such as Malaysia, the Philippines, and Indonesia have refocused their strategies towards growth, while Vietnam has already raced ahead of the pack,” it said.

Commenting on this, Bain & Company and Chair of Angsana Council Advisory Partner Charles Ormiston said that as a result of strong domestic growth and the China +1 strategy, Southeast Asia will outpace China’s growth in both GDP and FDI in the next decade.

“However, multinational investments will be highly contested, with the competition between countries improving outcomes for both businesses and consumers,” he said.

Meanwhile, DBS Bank Managing Director and Chief Economist Taimur Baig noted that the world has turned increasingly protectionist and inward-looking in recent years, a trend unlikely to change.

“Yet, most Southeast Asian economies and companies are well placed to find opportunities as capital allocation is recalibrated across geographies and sectors, while dealing with tech disruption and climate change.

“We think the doomsayers are wrong; a decade of tailwind awaits the region.”

Nevertheless, the report pointed out that despite a slowdown in growth, Malaysia is expected to grow at 4.5 per cent.

“This shows signs of doing well with recent efforts to attract FDI, leveraging its past successes in growth sectors such as semiconductors.

“It could also be the main beneficiary of flow through of opportunities from Singapore, particularly reflected in the sharp uptick in data centre investments. Malaysia’s data centre capacity has the potential to more than double the capacity of Singapore, which hitherto has been the leader in the region,” it said.

Looking ahead, the report stated that to accelerate growth, SEA-6 needs to adopt strategies to redirect resources, make bold policy changes and take risks in five key areas.

“These include investing in emerging growth sectors, fostering TEDs, strengthening capital markets and expanding investments, accelerating green transition and embracing multilateral initiatives,” it said.