Economic Growth for Southeast Asia Forecast to Reach 4.5%; AI to Fuel Demand for Semiconductors – Fintech Schweiz … – Fintechnews Switzerland
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The Asian Development Bank (ADB) has released its annual outlook and economic forecasts for Asia-Pacific (APAC), predicting strong economic growth in Southeast Asia driven by robust domestic demand, a continued recovery in tourism, and an expansion of the semiconductor industry.
The subregion is expected to grow by 4.6% in 2024 and 4.7% in 2025, up from 4.1% in 2023.
Singapore’s gross domestic product (GDP) is forecast to grow by 2.4% in 2024, up from 1.1% in 2023, supported by continuing recovery in manufacturing and external trade. Growth in manufacturing will gradually pick up in tandem with the turnaround in global electronics demand, while services will remain resilient, supported by trade-related sectors, the ADB predicts.
Stable consumption and a recovery in investment will support domestic demand, despite higher domestic taxes, and external demand is already showing signs of recovery, increasing by 16.1% in January 2024.
Across the broader Southeast Asia subregion, the Philippines (6% in 2024 and 6.2% in 2025) and Vietnam (6% in 2024 and 6.2% in 2025) are expected to see the strongest economic growth through 2025, boosted by a resurgence in merchandise exports starting in mid-2024. Indonesia, meanwhile, will maintain a 5% growth rate over the next two years, supported by strong private consumption, public infrastructure spending, and gradually improving investment. Across the region, tourism will further support services growth across the subregion, while industrial output will align with a recovery in exports and easing monetary policy.
Finally, Southeast Asia’s inflation will continue to ease, the ADB predicts, falling from 4.1% in 2023 to 3.2% in 2024 and 3% in 2025.
In 2023, economic growth in Southeast Asia slowed, dipping from 5.7% in 2022 to 4.1% in 2023 as weaker external demand contributed to slower growth in nine of the subregion’s 11 economies.
Southeast Asia’s exports of electronics contracted by 7.5% in 2023 (up to November) after a strong 19.1% expansion in 2022. With the exception of Singapore, the subregion has been less involved in producing the AI and automotive chips driving the upturn in the semiconductor demand cycle.
Semiconductors are the fundamental building block of modern electronics. They are critical not to consumer electronics but also to technologies like artificial intelligence (AI), 5G telecommunications, and electric and autonomous vehicles, among others.
Southeast Asian economies have been striving to increase their share in the global semiconductor value chain, and the ADB predicts that the rising AI-driven demand for specialized microchips could benefit these economies.
Southeast Asian countries could see gains due to their focus on downstream services such as assembly, testing, and packaging, which are vital to the global semiconductor industry. Moreover, these economies provide younger, more abundant, and lower wage workers that can attract investments from large semiconductor manufacturers in East Asia as they diversify their production base.
Evidence suggests that this is already taking place, with the state of Penang in Malaysia attracting almost US$13 billion in semiconductor-related foreign direct investment in 2023, exceeding the total for the previous seven years combined, according to Prime Minister Datuk Seri Anwar Ibrahim.
Malaysia, which already accounts for 13% of global semiconductor testing and packaging, is targeting at least MYR 500 billion (US$107 billion) in investment for its semiconductor industry. The country has already dran investments from leading international firms including US chipmaker Intel and German firm Infineon. Western firms AT&S, Nvidia, Ericsson and Bosch are also expanding their operations in Malaysia, as are the Chinese companies Xfusion, StarFive, and TongFu Microelectronics.
Vietnam’s capital, Hanoi, is also working to become a semiconductor production hub by 2050, offering tax breaks and other incentives to attract semiconductor companies.
To keep harnessing this potential, the ADB advises governments in the region to continue devising policies that attract foreign direct investment, increase spending on research and development, and invest in human capital development, as semiconductor manufacturing requires highly skilled labor.
High-income and developing economies in Southeast Asia and East Asia, such as Taiwan, South Korea and Mainland China, account for more than 80% of global semiconductor manufacturing.
After contracting sharply at the end of 2022, exports from Asia’s main semiconductor manufacturing economies picked up over 2023 and were about 15% higher in the last quarter of the year relative to the first quarter.
This increase in semiconductor exports was primarily driven by increasing demand for microprocessors and memory chips, which grew by almost 25% from the first to the last quarter of 2023. Their share in overall semiconductor exports from Asia’s main producers rose almost 5% points over 2023, boosted by the exponential growth in generative AI applications like ChatGPT and the need for specialized, high-performance hardware to support these applications, the report says.
Global sales of semiconductors are expected to reach US$588 billion this year, up from US$520 billion in 2023, according to the World Semiconductor Trade Statistics (WSTS) organization.
Featured image credit: edited from freepik
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