With an average growth rate of 4.7%, the size of the six Southeast Asian economies will surpass Japan by 2029, according to HSBC calculations.
According to a report by HSBC Bank, the size of the Southeast Asian economy (including Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam) will be about 4,000 billion USD by 2023. This level ranks 5th in the world after the US, China, Germany and Japan.
The International Monetary Fund (IMF) forecasts that this region will grow the fastest in the world over the next 5 years, averaging 4.7%. At this rate, according to HSBC's calculations, Southeast Asian countries will surpass Japan in economic size by 2029. At that time, this region will still maintain its position as the 5th largest economy, while India will rise to 4th place and Japan to 6th place.
HSBC noted that Southeast Asia's growth is not driven by demographics, as its share of the global population peaked in 2012 at 8.59% and will gradually decline to 8.33% between 2024 and 2035.
The bank explained that the key lies in improving the quality of growth through innovation, creativity and moving up the global value chain. The rankings of five economies, except Malaysia, in the Global Innovation Index have improved significantly over the past decade. In this aspect, Singapore ranks fourth in the world.
This result is also reflected in the market share of high-tech manufacturing, with the six Southeast Asian countries, along with China, the two economies that have excelled in manufacturing expansion. The region increased its market share in merchandise exports from 6.1% in 2005 to 7.4% in 2023, surpassing Japan and South Korea combined in 2017.
Of the six countries, Vietnam will see the biggest increase in exports. Indonesia, which has the most free trade agreements, will also benefit from the electric vehicle trend, which will benefit the mining industry. "We believe that openness will be the main strength of the Southeast Asian economies over the next five years," the report said.
In addition to goods, the region also exports services in electronics, telecommunications, finance, the arts, and business process outsourcing (BPO). Singapore leads the sector as a financial hub, with total financial services exports reaching $2.6 billion last year.
Since 2000, the Philippines has leveraged its young, skilled, English-speaking workforce to develop a BPO industry that competes with India. Revenue from this sector is equivalent to remittances. HSBC believes that Southeast Asia, along with India, is in a position to lead the wave of service exports.
Another strength of Southeast Asia is tourism. Total arrivals to the six countries increased by an average of 7.1% per year over 12 years (2007-2019). Global market share increased from 4.9% to 8.7%. Of these, Singapore and Thailand have achieved the most success.
Singapore has hosted the Singapore Grand Prix since 2008 and recently hosted a series of mega concerts by Taylor Swift. Meanwhile, Thailand has invested in luxury hotels, helping tourism revenue grow faster than the number of visitors.
Amid rising trade defense sentiment globally, HSBC is optimistic that Southeast Asia remains “a haven for free trade”, continuing to grow in size and global influence.
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