The Southeast Asian economy is forecasted to grow by 4 percent to 5 percent annually over the next 10 years, with Vietnam leading the charge at a projected growth of 5 percent to 7 percent, according to a joint report by Bain & Company and Monk’s Hill Ventures’ Angsana Council.

The report said while many economists have correctly focused on the pro-growth policies, stable macroeconomics and healthy demographics of Southeast Asia, they are often missing two critical sources of additional growth: 1) the growing impact of tech-enabled entrepreneurs on investment, productivity and economic inclusion and 2) that SE Asia’s largest trading relationships are with China; as China grows SE Asia grows.

Contrary to conventional wisdom that SE Asia benefits most from businesses diversifying away from China, the report said SE Asia benefits most from a growing Chinese economy.

According to the report, since 1991, SEA has experienced strong and steady growth, with per capita income rising 2.5 times from $1,900 to $4,700 in 2020.

Contributing factors include stable government policies, surging entrepreneurial activity, favourable demographics, and a relatively benign international environment.

It said SEA’s gross domestic product (GDP) per capita income has been growing and could return to leading emerging markets growth on the back of robust traditional growth policies, a vibrant ecosystem of tech-enabled disruptors (TED), attractive demographics with a growing working and middle class, taking a neutral stance amidst geopolitical winds.

The report projections for growth in Southeast Asia foresee a modest uptick for all major Southeast Asian countries except Thailand, which should be interpreted as a “rosy scenario” relative to the growth headwinds faced by Europe, Japan, China and emerging regions like Latin America and Eastern Europe.

It said SEA countries have made steady progress towards improving several of the seven traditional growth drivers Bain has defined in the study.

These include improving the ease of doing business, enabling healthy competition, facilitating investment, strengthening government and reducing corruption, raising education levels and promoting re-skilling, improving infrastructure, increasing macroeconomic and social stability.

According to the report, probably the most noticeable improvement in Southeast Asia is the marked increase in macroeconomic stability since the 1997 Asia Crisis. This reduction in risk will benefit Southeast Asia during this time of global headwinds.

The report also highlighted that today, the greatest force of progress in most developing countries are tech-enabled disruptors or TEDs.

The TEDs are directly and indirectly impacting six of the seven traditional growth drivers by promoting business creation, enabling healthy competition, raising investment, strengthening e-government, improving education and productivity levels, and improving infrastructure, it said.

It also said pressure from TEDs is forcing traditional family-controlled or “national champions” to increase investment levels and accelerate innovation or face irrelevance in the coming decade.

It noted that most Southeast Asian governments actively nurture the growth of TEDs with beneficial policies, regulations, and infrastructure building in areas critical to tech-enabled disruption.

According to the report, one advantage of SEA is the demographic dividend expected from the size and growth of its working-age population.

It said in 2022, China’s population tipped into absolute decline, and SEA has the largest cohort of children relative to total population among the emerging regions under review.

Middle-class consumerism is expected to rise given a youthful population that needs to spend on lifestyle, education, housing, and other needs well into the 2030s, while Latin America and Eastern Europe’s populations will begin to contract, said the report.

It noted that SEA has seen consumer growth in line with GDP growth at an attractive and sustainable rate.

It said SEA has traditionally traded peacefully with various “great civilizations” – China, Arabia, Persia, India, Europe – while balancing their competing demands.

SEA can look forward to maintaining this neutral status even in this complex geopolitical environment, it added.

It said SEA also benefits from the rise of China in two distinct ways: as the largest market for SEA trade and as an important source of foreign direct investment (FDI) as non-Chinese and Chinese companies diversify or shift supply chains away from China.

“Growth forecasts are notoriously difficult due to a myriad of factors that can affect projections based purely on historical performance,” said Charles Ormiston, Founding Partner, Bain & Company, Southeast Asia.

“This report represents our informed perspectives on the future of Southeast Asia, which is gleaned via a rigorous methodology for looking at past performance combined with our judgement on how underlying changes in the business, economic, social, and political realm are likely to impact growth,

“We remain optimistic about Southeast Asia’s continued growth in the face of global instability and that it maintains the possibility of out-growing other emerging regions in the world over the next decade,” he added.

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