Southeast Asia can leverage geopolitics to become a key player in global trade

November 17, 2022

JAKARTA – In a global economy facing a prolonged period of low growth and high inflation, Southeast Asia is a rare reason for optimism, with strong fundamentals, accelerating growth and a bright future.

The region showed its potential this week as Indonesia hosted the Group of 20

The Leaders’ Summit in Bali and Thailand will host world leaders for the Asia-Pacific Economic Cooperation (APEC) meeting in Bangkok this weekend.

Southeast Asia is poised for growth. Amid a flood of global downgrades, the Asian Development Bank’s September Outlook raised its forecast for the region’s gross domestic product growth from 4.9% to 5.1%. We expect Thailand, Singapore, Indonesia, Philippines, Malaysia and Vietnam to grow 3.2% to 7.6% this year despite economic uncertainties and volatility.

This strength is belatedly gaining the economic recognition it deserves in Southeast Asia. In 2022, we surveyed 1,500 companies from China, France, Germany, India, the United States and the United Kingdom, and found that 90% of foreign companies operating in the region plan to increase their presence over the next two years. Two-thirds expect organic growth of 20% or more over the next 12 months.

Southeast Asia has become part of a matrix of beneficial trade agreements, both within Asia and with Europe and North America. It sits at the crossroads of two of the largest free trade agreements in the world: the Regional Comprehensive Economic Partnership (RCEP) which covers all of Southeast Asia, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). , with Malaysia, Singapore and Vietnam as members.

Its daring openness and internationalism is already bearing fruit: ASEAN, made up of 10 members, is the fastest growing trading bloc in the world and now accounts for nearly 8% of world exports (Global Research, October 2022). In terms of inward foreign direct investment, ASEAN now accounts for around 10% of the global total, almost on par with mainland China.

But these gains are under threat as protectionist forces strengthen, especially in developed economies. The APEC and G20 meetings would be perfect venues for world leaders to recommit to the principles of free trade and multilateralism that have brought about astonishing improvements in living standards in developed economies and have lifted billions of people out of poverty in developing markets over the past 50 years.

The three Ds drive much of the international interest: demographics, digital and dynamism.

Southeast Asia has 680 million inhabitants: 50% more than the EU and more than twice as many as the United States. And it is a population that has become increasingly affluent and educated, with an increasingly skilled workforce and competitive salaries. A young and upwardly mobile population means a growing class of consumers in the years to come. According to a World Economic Forum report on ASEAN, Southeast Asia will add around 140 million new consumers by 2030.

And these new consumers are going to be empowered and connected by increasingly sophisticated digital opportunities. A joint report by Google, Temasek, and Bain & Co. found that its population is also going online at a blistering pace. An estimated 40 million new internet users went online in 2020 and 2021 and eMarketer has predicted the region’s e-commerce sales to grow 21% – the fastest in the world – to $90 billion this year.

Wealth creation is amplified by a region that has always been entrepreneurial, but now has the resources to invest in business growth. For example, wealth in Thailand is expected to increase by almost 60% between 2022 and 2030, with the number of millionaires expected to double over the same period, according to HSBC research.

Despite talk of a global recession, many Southeast Asian economies are recovering strongly from the pandemic. And as the world gradually returns to normal and travel restrictions ease, this region is likely to get a significant boost, especially for tourism-intensive economies such as Thailand.

The bright outlook does not mean Southeast Asia is immune to broader headwinds. Global inflation will dampen export demand and geopolitical challenges will add a degree of uncertainty even as diversified supply chains provide an immediate boost to countries like Vietnam, Thailand and Malaysia.

But in the longer term, the biggest challenge is climate change. Southeast Asia is one of the regions of the world most at risk with regard to global warming in general and sea level rise in particular. In economic terms, the Asian Development Bank estimates that if nothing is done, climate change is expected to reduce Southeast Asia’s GDP by 11% by the end of the century. But the regional commitment is also clear. All 10 ASEAN states are signatories to the Paris Agreement and ASEAN has pledged to make 23% of its primary energy renewable by 2025.

Despite the shadows cast by the global pandemic over the past few years and other market uncertainties, we see the coming years as a time of great promise for Southeast Asia, brimming with potential opportunities ranging from sustainability and digital technology to trade and wealth.

The key to unlocking this potential is not just understanding the dynamics of each market, but understanding how to help businesses in all markets connect and work together – from automotive in Thailand to electronics manufacturing in Malaysia. natural resources in Indonesia and financial services. in Singapore.

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The author is co-CEO of HSBC Asia-Pacific.