According to a new report by Google, Temasek, and Bain & Company, the Philippines’ and South East Asia’s digital economies grew faster than expected in 2022 and are set to breach the US$200 billion mark in terms of the total value of transactions made this year.
The milestone comes three years ahead of projections and is a 20% increase from last year’s $161 billion in gross merchandise value (GMV). An earlier report made in 2016 had estimated the Internet economy in the Philippines and five other countries in the region to close in on the US$200 billion mark by 2025, or about 3 years from now.
Aside from the Philippines, five other major economies covered in the report were: Indonesia, Malaysia, Singapore, Thailand, and Vietnam. The report, however, did not address other populations in the region like Brunei, Cambodia, Laos, and Myanmar, as well as East Timor and Papua New Guinea.
“After years of acceleration, digital adoption growth is normalizing,” the report said.
Southeast Asia continues to see growth in terms of Internet users — with 20 million new users added in 2022, raising the total number of users to 460 million. That growth, however, is slowing down and is just 4% in 2022 compared to a 10% year-on-year increase in 2021, and 11% growth in 2020, at the height of the COVID-19 pandemic.
E-commerce to continue, with digital financial services as a key growth driver
E-commerce or the online buying and selling of goods continue to drive growth in the region despite the resumption of offline shopping as pandemic lockdowns get lifted. GMV in the sector grew 16% to $131 billion in 2022. The next 3 years may see a slowdown, however, with growth in the e-commerce sector projected to grow at a compound annual growth rate (CAGR) of just 17% from 2022 to 2025.
“E-commerce continues to accelerate, food delivery and online media are returning to pre-pandemic growth levels, while travel and transport recovery to pre-COVID levels will take time,” the report said.
Thanks to offline-to-online behavior shifts after the pandemic, one key growth driver for e-commerce that was mentioned in the report are digital financial services. These services include payments, lending, investments, and insurance as well as remittances, all of which have seen healthy growth from 2021 to 2022.
Among these services, insurance recorded the highest growth rate, increasing in size by 31% year-on-year while lending services grew 25% year-on-year.
Stephanie Davis, vice president at Google Southeast Asia, was also quoted as saying in the report, “As we have opened back up post-pandemic, mobility in retail places has actually surpassed pre-pandemic [levels] in multiple countries. Yet, the digital economy still grew by 20% year-on-year. And that signifies that a lot of the adoptions that took place during the pandemic are here to stay. Some new habits have been formed.”
For his part, Fock Wai Hoong, Head Deputy of Temasek’s Technology and Consumer, said, “The rising rate environment has led us to conclude that growth-at-all-costs strategy is no longer a viable strategy. Investors are continuing to pivot towards profitability, free cash flow, and normalized profit margins. Finding the right balance and calibrating between cost optimization and top-line growth is something that all companies have to work through.”
All six countries included in the report are set to post double-digit growth in GMV from 2022 to 2025.
The report showed that Vietnam is in the lead, and is set to post a 31% growth in GMV from $23 billion in 2022 to $49 billion in 2025. The Philippines follows closely behind with an expected growth of 20% in GMV, or from $20 billion in 2022 to $35 billion in 2025.