Southeast Asia

quarterly economic review:

Mixed growth
In the third quarter of 2024, Southeast Asia’s economies showed mixed
growth, but local markets and global demand remained resilient with
growth fundamentals broadly intact.

by Albert Chang, Denis Burgrov, and Joe Ngai

with Debadrita Dhara and Kamaruzaman Kamarudin

© Getty Images

December 2024
 Southeast Asia’s economies continued to deliver especially the ongoing global geopolitical
credible economic performance, although growth challenges.
momentum was mixed across the region. Vietnam’s
GDP growth of 7.4 percent in the third quarter In this article, we focus on the economies of six
was its third-highest attained in the past five countries in Southeast Asia: Indonesia, Malaysia,
years, while Singapore saw its strongest quarterly the Philippines, Singapore, Thailand, and Vietnam.
GDP growth since 2022 at 5.4 percent. Thailand, We start by setting the scene with a regional
too, saw accelerated growth. Growth momentum, overview.
meanwhile, abated in Indonesia, Malaysia, and
the Philippines (Exhibit 1). Core growth drivers
remained broadly solid, with the combination Macroeconomic outlook
of strong exports, higher investments, output
expansion, and stable consumption prevalent GDP
across most markets.1 Despite mixed performance in the third quarter of
2024, GDP growth remained robust in the region,
The resilient labor markets and lower inflation with strong exports and investments broadly
conditions, coupled with sustained demand from driving growth. Vietnam’s GDP grew 7.4 percent
key global markets, such as China and the United in the third quarter, its third-highest growth in
States, should provide hope for a continuation the past five years. Singapore saw its strongest
of a positive economic trajectory in the region. GDP growth since 2022 at 5.4 percent, up from
The growth outlook will, however, remain subject 2.9 percent in the previous quarter. Thailand, too,
to domestic and external risk considerations, saw growth accelerate. Malaysia’s economy grew

1
For the purposes of this article, most of the statistics used have been taken from countries’ national statistics offices and central banks as a
primary source. Oxford Economics has been used as a secondary source unless otherwise stated.

Exhibit 1
Southeast
Southeast Asian economiesexperienced
Asian economies experiencedmixed
mixedtop-line
top-line growth
growth in the
in the third
third
quarter of 2024.
quarter of 2024.

Real GDP growth rate vs previous period, %

2021 2022 2023 Q1 2024 Q2 2024 Q3 2024

Indonesia 3.7 5.3 5.1 5.1 5.1 5.0

Malaysia 3.1 8.7 3.7 4.2 5.9 5.3

Philippines 5.7 7.6 5.6 5.7 6.3 5.2

Singapore 9.1 3.7 1.1 3.0 2.9 5.4

Thailand 1.6 2.5 1.9 1.6 2.3 3.0

Vietnam 2.6 8.0 5.0 5.6 7.1 7.4

Source: Countries’ national statistics offices; Oxford Economics

McKinsey & Company

2 Southeast Asia quarterly economic review: Mixed growth

slower at 5.3 percent in the third quarter, yet it situation normalized to prepandemic levels. In
still had a credible performance, with exports, the longer term, however, workers across the
investments, and consumption remaining stable. region will need to upskill or reskill. This is critical
This is also in light of the second quarter’s growth to drive sustainable, inclusive growth in response
of 5.9 percent, being one of Malaysia’s best to structural changes in evolving sectors and
quarterly performances in the past three years. the challenge of navigating technological
Indonesia experienced its second consecutive disruption. In the case of developing markets,
quarter of slower growth as consumption, a key such as Indonesia and the Philippines, workforce
growth driver, remained flat. The Philippines employability needs to be improved as their
recorded 5.2 percent growth, the slowest over the employment ecosystems remain dominated by
past five quarters, as exports saw a blip. people working in the informal sector.

Trade momentum Prices

Trade gathered pace, with export growth Inflation broadly eased, continuing the trend
supported by demand from key trading partners seen over the recent quarters. Prices across the
such as China and the United States, particularly region appear to have stabilized, with all countries
in commodities as well as electronics, which reporting inflationary levels already within their
continued to benefit from the global technology respective target rates or at levels deemed
upcycle. Export growth accelerated in the third acceptable.
quarter across Indonesia, Malaysia, Thailand,
and Vietnam. Singapore returned to its prior
growth trajectory following a spike in the Financial markets
second quarter, while the Philippines saw a
1.0 percent contraction. Imports broadly grew Currency
strongly, following an increase in local demand All Southeast Asian currencies rallied against the
for intermediate and capital goods to support US dollar in the third quarter during the lead-up to
industrial production and investment activities. the US Federal (Fed) rate cut in September 2024.
The Malaysia rupiah strengthened the most out of
Industrial activity all currencies, appreciating by 14.9 percent. The
Industrial activities appeared to be turning the Thai baht appreciated by close to 12.0 percent
corner, with strong local and foreign markets against the US dollar, at one point reaching its
helping to prop demand in the third quarter. highest level in 31 months against the greenback.
Singapore was a bright spark, rebounding to All of the region’s currencies have retreated since
expand by 11.0 percent after seeing continued October 2024 as the US dollar strengthened,
contractions in recent quarters. Malaysia following expectations of smaller Fed policy
recorded its strongest quarterly performance rate reductions in the future, given the robust
in 2024, with exports-oriented clusters driving economic performance in the United States.
growth, while Thailand attained its first back-to-
back quarterly growth since 2022. Purchasing Interest rates
Managers’ Index (PMI) readings, meanwhile, were Bank Indonesia (BI) was the only central bank
mixed as geopolitics remain uncertain and could in the region to act in the third quarter, cutting
still weigh down on future factory activities. its policy rate by 25 basis points to 6 percent
in September 2024, the first time since the
Labor progressive hikes in February 2021. The central
Labor markets across the region continued banks of the Philippines and Thailand cut rates
to remain strong, with unemployment in all a bit later, in October 2024. This marked the
markets improving. Indonesia experienced its second rate cut in 2024 for the Philippines, while
lowest unemployment rate since 1997; similarly, the revision was the first cut for Thailand in four
Singapore saw unemployment at its joint lowest years. Other central banks were comfortable with
in the past five years. Malaysia’s unemployment their prevailing positions. Growth, inflation, and

Southeast Asia quarterly economic review: Mixed growth 3

 stable monetary conditions will continue to be the region’s attractiveness as an investment
core considerations in determining the region’s destination as businesses continue to reassess
central banks’ assessments of their policy rates in and reconfigure their global operational and
the future. supply chain footprints. Southeast Asia attracted
investments in sectors including automotive,
Capital flows electronics, mining, and services, with each
In the third quarter, Southeast Asian countries country developing clear strength and value
continued to build on the positive momentum from propositions in specific sectors over others.
the previous quarter. Indonesia, the Philippines,
Thailand, and Vietnam saw higher foreign direct Key indicator details can be found in Exhibit 2.
investment (FDI) inflow this quarter. This reflects

Exhibit 2
Economic fundamentals
Economic fundamentals remained
remained robust
robust withwith strong
strong exports
exports and investment
and investment
performance
performance ininthe
thethird
third quarter
quarter of 2024.
of 2024 .

Change over previous quarter¹ Declining No significant change Improving

Category Indicator Indonesia Malaysia Philippines Singapore Thailand Vietnam

Macro- Private
economic consumption
Fixed
investment
Business/
industry

PMI²

Exports

Prices

Labor market

Financial Currency

FDI³ inflows

Policy rate

1
Defined as % change in growth rate over previous quarter. Worsening = more than 0.5% decline; no significant change = 0.0 to 0.5% change;
improving = more than 0.5% increase.
2
Purchasing managers’ index.
3
Foreign direct investment.
Source: Countries’ national statistics offices; Oxford Economics

McKinsey & Company

In the following sections, we focus on the six specific countries in Southeast Asia, examining their
macroeconomic conditions and financial markets.

4 Southeast Asia quarterly economic review: Mixed growth

Indonesia

Indonesia’s economic momentum softened imports grew strongly, while investment activity
in the third quarter, with GDP expanding 4.95 saw a surge, driven by infrastructure projects and
percent year on year from 5.05 percent in the capital investment (Exhibit 3). Public consumption
previous quarter. This was the slowest GDP growth rebounded ahead of the looming regional elections.
since the third quarter of 2023, as household Inflation continued to ease, consistently staying
consumption continued to remain flat. Exports and within the central bank’s target range.

Exhibit 3
Exports
Exportspicked
pickedup
uppace to prop
at pace up Indonesia’s
to prop third-quarter
up Indonesia’s growth,
third-quarter whilewhile
growth,
private
private consumption
consumptionremained
remainedflat.
flat.
Indonesia exports vs private consumption,¹ % value growth
Exports Private consumption
60

50

40

30

20

10

–10

–20

–30
Q1 2018 Q1 2019 Q1 2020 Q1 2021 Q1 2022 Q1 2023 Q1 2024
1
Year-on-year change, quarterly, through Q3 2024.
Source: Countries’ national statistics offices; Oxford Economics

McKinsey & Company

Southeast Asia quarterly economic review: Mixed growth 5

 Macroeconomic outlook strong demand for the country’s commodities. 5
Imports also surged by 17.49 percent year on year,
GDP reflecting increased demand for intermediate and
Indonesia recorded 4.95 percent in GDP growth capital goods, such as machinery and equipment,
in the third quarter, slower than the previous supporting industrial and investment activities.
quarter’s growth of 5.05 percent. This marks the China remained Indonesia’s top trading partner.6
second consecutive quarter of slower growth
as weak consumption continued to be a drag. Industrial activity
Investment, however, recorded its fastest growth On the back of strong local and foreign demand,
in a year, supported by investments in the new the manufacturing sector grew by 4.72 percent in
capital city in Nusantara, East Kalimantan, and the third quarter, compared to 3.95 percent in the
broader infrastructure spending.2 Government prior quarter.7 Food and beverage manufacturing
consumption and exports, too, saw improved was a case in point, expanding by 5.82 percent
performance. From a sector viewpoint, as manufacturers stepped up production to meet
construction was the top-performing sector, demand from local and international buyers. 8
growing at 7.48 percent, while the manufacturing PMI, however, stayed within the contractionary
sector, a key growth engine, increased 4.72 zone throughout the third quarter, with the latest
percent this quarter. 3 October figure clocking in at 49.2, similar to
September. Subdued market conditions from
Private consumption continued geopolitical uncertainty were one of the
Household consumption growth continued to drivers of the weakness in factory activities.9
remain stagnant, growing at 4.91 percent in the
third quarter, slightly below the 4.93 percent year- Labor
on-year growth recorded in the previous quarter. Indonesia’s National Labour Force Survey’s
Inflation stayed under control, but household latest release indicated an improvement in the
purchases for daily needs remained flat, with unemployment rate, which declined to 4.91
some expenditure segments, such as clothing and percent in August 2024 from 5.32 percent in the
housing, seeing a slowdown. 4 same month of 2023.10 This marked the lowest
level of unemployment seen since 1997, although
Trade structural challenges of the employed workforce
Trade gathered pace as exports and imports grew being dominated by workers in informal sectors
9.1 and 11.5 percent, respectively, well ahead still remain.11
of the previous quarter’s 8.2 and 7.8 percent
growth, respectively. In the latest release by BPS- Inflation
Statistics Indonesia, export growth momentum Inflation continued its declining trend over the third
continued in October, with non-oil and gas exports quarter, with the October figure of 1.71 percent
rising by 11.04 percent year on year, driven by marking the sixth consecutive month of decline

2
“Solid economic growth maintained in Q3/2024,” Bank Indonesia, November 5, 2024.
3
“Indonesia’s economic growth in Q3-2024 was 1.50 percent (Q-to-Q),” BPS-Statistics Indonesia, November 5, 2024.
4
Jayantay Nada Shota, “Indonesia’s economy slows to 4.95 pct in Q3-2024,” Jakarta Globe, November 5, 2024.
5
“Exports in September 2024 reached $22.08 billion and imports in September 2024 reached $18.82 billion,” BPS-Statistics Indonesia,
October 15, 2024; “Exports in October 2024 reached $24.41 billion and imports in October 2024 reached $21.94 billion,” BPS-Statistics
Indonesia, November 15, 2024.
6
“BI-rate held at 6.00%: Maintaining stability, strengthening economic growth,” Bank Indonesia, November 20, 2024.
7
“Indonesia’s economic growth in Q3-2024 was 1.50 percent (Q-to-Q),” BPS-Statistics Indonesia, November 5, 2024.
8
“Indonesia’s economic growth in Q3-2024 was 1.50 percent (Q-to-Q),” BPS-Statistics Indonesia, November 5, 2024.
9
“Manufacturing sector experiences further contraction in October,” S&P Global manufacturing PMI, November 1, 2024.
10
“Unemployment rate was 4.91 percent,” BPS-Statistics Indonesia, November 5, 2024.
11
“Unemployment rate was 4.91 percent,” BPS-Statistics Indonesia, November 5, 2024.

6 Southeast Asia quarterly economic review: Mixed growth

since March 2024. Inflation throughout 2024 has Policy rate
come within the central bank’s target range of 1.5 Bank Indonesia (BI) cut its policy rate by 25 basis
to 3.5 percent, particularly October’s numbers, points in September 2024 to 6 percent for the
which were the lowest seen since October 2021. first time after the progressive hikes seen since
Food prices in October rose at the slowest February 2021. Those hikes aimed to bolster
pace in 15 months—increasing by 2.35 percent economic growth, believing the rupiah could
compared to 2.57 percent in September—as remain stable and inflation stay low in 2024 and
rice supplies remained ample due to the delayed 2025. The outcome of the recent US elections
harvest season shifting from March to May. could, however, alter future global economics
Inflation also eased slightly in other segments, and geopolitics. BI has maintained its rate since
such as recreation, culture, and education, while September 2024 in its October and November
transportation saw a deflation of 0.08 percent.12 2024 meetings and is likely to keep rates
consistent in the near term as it looks to ensure
the stability of the rupiah.14
Financial markets
Capital flows
Currency FDI inflows recorded the fastest growth since the
The Indonesia rupiah strengthened over the first quarter of 2023, surging by 18.55 percent
course of the third quarter by about 8 percent year-on-year to $14.94 billion (232.65 trillion
against the US dollar, mirroring the trend seen rupiah) in the third quarter of 2024, following a
in most parts of the region. However, it lost half 16.6 percent rise in the second quarter. Clarity on
of the gains in the third quarter and has been Indonesia’s economic priorities post-elections
weakening since October, although it was still earlier in 2024 helped build investors’ confidence,
at a level above the lows seen in June 2024. The with priority sectors linked to the electric vehicle
recent weakness has been attributed to the (EV) supply chain, such as mining and metal
broader strengthening of the US dollar and refining industries, seeing strong investment
the capital flight to US dollar assets since the support. The base metal industry received the
conclusion of the recent US elections. Stabilizing largest share of FDI at $3.03 billion, followed by
the rupiah will likely be a key priority for the transportation, warehousing, telecommunications
central bank, especially in the near term.13 ($2.02 billion), and mining ($1.56 billion).15

12
“Indonesia inflation rate,” Trading Economics, accessed November 2024.
13
“Monetary policy objectives,” Bank Indonesia, accessed November 2024.
14
“BI-rate held at 6.00%,” November 20, 2024.
15
“Indonesia foreign direct investment yoy,” Trading Economics, accessed November 2024.

Southeast Asia quarterly economic review: Mixed growth 7

 Malaysia

Malaysia’s economy continued to gather pace, performances were mixed (Exhibit 4). The labor
albeit at a slower rate of 5.3 percent in the third market was robust, with labor participation at a
quarter, in contrast to the second quarter’s growth historic high. The ringgit was the region’s strongest
of 5.9 percent, which was one of the country’s best currency in the region, and inflation remained stable.
quarters in the past three years. Strong exports,
expansion in investments, and resilient household Going forward, Malaysia expects to sustain its
consumption helped propel growth, while sector growth momentum, with investment activities and

Exhibit 4
Exportsrecovery
Exports recoveryprovided
providedcritical
critical growth
growth support
support forfor Malaysia
Malaysia in the
in the third
third
quarter, while private consumption saw slower growth.
quarter, while private consumption saw slower growth.

Malaysia exports vs private consumption,¹ % value growth

Exports Private consumption
60

50

40

30

20

10

–10

–20

–30
Q1 2018 Q1 2019 Q1 2020 Q1 2021 Q1 2022 Q1 2023 Q1 2024
1
Year-on-year change, quarterly, through Q3 2024.
Source: Countries’ national statistics offices; Oxford Economics

McKinsey & Company

8 Southeast Asia quarterly economic review: Mixed growth

household spending remaining robust and exports exports drove growth, attributed to higher
continuing to improve.16 external demand and the positive effects of the
global technology upcycle. Meanwhile, imports
built on the second quarter’s growth (15.0 percent)
Macroeconomic outlook to achieve 20.8 percent import growth in the
third quarter, driven by strong domestic demand
GDP for capital and intermediate goods to support
Malaysia’s economy remained strong, although investment activities and the production of
growth moderated to 5.3 percent in the third manufactured exports.19
quarter from 5.9 percent in the previous quarter.
Higher goods and services exports, especially in Industrial activity
tourism, stronger expansion in private and public Manufacturing output grew 5.6 percent in the
investment activities, and continued stability in third quarter, the strongest quarterly performance
household spending were key demand drivers. recorded this year. Exports-oriented clusters
supported production growth this quarter,
The supply side experienced contrasting fortunes. including E&E and petrochemicals.20 PMI stood at
Manufacturing saw stronger growth of 5.6 49.5 in October, similar to September’s figure. This
percent (4.7 percent in the previous quarter), marks the fifth consecutive month of contraction
driven by export-oriented clusters such as in factory activity. While October saw a rise in new
electricals and electronics. Construction, too, order intakes, production volumes experienced a
expanded. Meanwhile, the services sector growth reduction, leading to lower purchasing activities.21
decelerated to 5.2 percent (5.9 percent in the
previous quarter), although consumer subsectors Labor
remained strong.17 Malaysia’s unemployment rate declined further to
3.2 percent in the third quarter from 3.3 percent in
Private consumption the prior quarter. The improvement ensured that
Private consumption saw slower growth of 4.8 unemployment continued to be anchored at pre-
percent in the third quarter from 6.0 percent the COVID-19 levels and remained low. Labor demand
previous quarter, though slightly stronger growth strengthened, with overall employment increasing
than the first quarter’s 4.7 percent. Strong labor by another 100,000 this quarter to 16.7 million.
market conditions and policy support to curb a The labor participation rate continued to remain at
rise in the cost of living will continue to remain a historic high of 70.5 percent.22
important for Malaysia to sustain consumption
levels.18 Inflation
Inflation remained constant at 1.9 percent in
Trade the third quarter. Food and beverages saw a
The exports sector continued its upward trajectory, moderation in prices, but higher inflation was
achieving 7.8 percent growth in the third quarter, recorded for diesel. Monthly inflation has thus far
stronger than the 5.8 percent recorded in been stable in 2024, hovering between 1.5 to 2.0
the previous quarter and over double the first percent. The forward-looking view for inflation
quarter’s 2.0 percent growth. Continued strong will continue to depend on policy measures
performance in the electrical and electronics on subsidies and price controls, along with
(E&E) sector and an expansion in commodity

16
“Economic and financial development in Malaysia in the third quarter of 2024,” Bank Negara Malaysia, November 15, 2024.
17
“Economic and financial development in Malaysia in the third quarter of 2024,” Bank Negara Malaysia, November 15, 2024.
18
“Economic and financial development in Malaysia in the third quarter of 2024,” Bank Negara Malaysia, November 15, 2024.
19
“Economic and financial development in Malaysia in the third quarter of 2024,” Bank Negara Malaysia, November 15, 2024.
20
“Economic and financial development in Malaysia in the third quarter of 2024,” Bank Negara Malaysia, November 15, 2024.
21
“Malaysia manufacturing PMI,” S&P Global, November 1, 2024.
22
“Economic and financial development in Malaysia in the third quarter of 2024,” Bank Negara Malaysia, November 15, 2024.

Southeast Asia quarterly economic review: Mixed growth 9

 global commodity prices and financial market 3.0 percent, reiterating that the present monetary
developments.23 stance would continue to support the economy
and was in line with the bank’s latest assessment
of inflation and growth prospects. While downside
Financial markets risks continue, Malaysia expects its economic
performance to be sustained and driven by
Currency resilient domestic expenditure and stronger
The ringgit was the region’s best-performing exports. Inflation, meanwhile, has thus far been
currency in the third quarter, appreciating by 14.9 modest and is expected to remain manageable.25
percent against the US dollar. From October to
mid-November, however, the ringgit depreciated Capital flows
by 7.8 percent as the dollar strengthened, Malaysia’s FDI inflows stood at 14.5 billion ringgit
following expectations of smaller Fed policy ($3.24 billion) in the third quarter, from 9.1 billion
rate reductions, given the robust economic ringgit in the preceding quarter.26 The services
performance in the United States.24 sector continued to be the largest beneficiary of
FDI in Malaysia, predominantly in the information
Policy rate and communication and wholesale and retail trade
In its latest policy meeting in November 2024, the subsectors, with Hong Kong, Singapore, and
central bank opted to maintain the policy rate at Switzerland being the country’s top investors.27

23
“Economic and financial development in Malaysia in the third quarter of 2024,” Bank Negara Malaysia, November 15, 2024.
24
“Economic and financial development in Malaysia in the third quarter of 2024,” Bank Negara Malaysia, November 15, 2024.
25
Monetary policy statement, Bank Negara Malaysia, 6 November 2024.
26
Muhammad Yusry, “Strong exports power Malaysia’s growth to 5.3 percent in Q3,” Malay Mail, November 15, 2024.
27
“Malaysia’s FDI inflows surge to 3.24 bln UDS in Q3,” Xinhuanet, December 1, 2024.

10 Southeast Asia quarterly economic review: Mixed growth

The Philippines

The Philippines’ economy saw a blip in the third the last quarter of 2024 on the back of easing
quarter, with growth slowing to 5.2 percent from inflation and accommodative monetary policy.
6.3 percent the previous quarter. This marks the
country’s slowest growth in the past five quarters Exports were a drag in the third quarter, while
and brought the country’s year-to-date growth consumption was stronger (Exhibit 5). The quarter
to 5.8 percent, below the government’s full-year also saw the central bank implementing its second
target of 6.0 to 7.0 percent. There are, however, rate cut for the year, with further cuts not being
expectations for growth to regain momentum in ruled out.

Exhibit 5
Weakerexports
Weaker exportswere
werea adrag
dragtoto the
the Philippines’
Philippines’ economy
economy in third
in the the third
quarter,
while stronger
quarter, whileprivate consumption
stronger helped cushion
private consumption thecushion
helped blip. the blip.
Philippines exports vs private consumption,¹ % value growth
Exports Private consumption
40

30

20

10

–10

–20

–30

–40
Q1 2018 Q1 2019 Q1 2020 Q1 2021 Q1 2022 Q1 2023 Q1 2024

1
Year-on-year change, quarterly, through Q3 2024.
Source: Countries’ national statistics offices; Oxford Economics

McKinsey & Company

Southeast Asia quarterly economic review: Mixed growth 11

 Macroeconomic outlook percent, impacted the exports of goods. Services
exports slowed as well, particularly due to the
GDP decline in air travel. Imports, however, grew
The Philippines’ economy recorded a slower faster at 6.4 percent, driven by services imports,
growth of 5.2 percent in the third quarter for a marking the fourth consecutive quarter increase. 30
year, bucking the trend of improving growth seen
in the past three quarters. Both the industry and Industrial activity
services sectors saw growth moderate to 5.0 and Manufacturing production in the Philippines grew
6.3 percent, respectively. The agriculture sector by 2.8 percent year on year in the third quarter,
experienced a contraction of 2.8 percent due with refined petroleum, food, and electrical
to severe weather and typhoons, which limited equipment production contributing to most of the
agricultural production and fishing activities. growth. This is, however, slower than the first and
Government expenditure slowed considerably second quarter’s expansion of 4.5 and 3.6 percent,
to 5.0 percent, from 11.9 percent in the second respectively. Manufacturing PMI in October
quarter. Weaker exports performance rounded remained above the 50.0 threshold at 52.9,
up the slower growth narrative in the third quarter. with confidence across manufacturing sectors
The latest outcome brought the Philippines’ year- remaining robust, even though this was a small
to-date GDP expansion to 5.8 percent, lower than decline from 53.7 recorded in September. 31
the government’s target of 6.0 to 7.0 percent
for 2024. Despite this, the government remains Labor
optimistic about achieving its 2024 target as September saw the third consecutive month
it expects easing inflation and accommodative of improvement in the labor market, with the
monetary policy to help spur growth through unemployment rate declining to 3.71 percent
higher private spending and infrastructure from 4.0 percent and 4.7 percent recorded in
investments.28 August and July, respectively. Sectors including
administrative and support services, wholesale
Private consumption and retail trade, and manufacturing saw the
Household consumption grew 5.1 percent year on largest addition in employment. The targeted
year, an improvement on the 4.6 percent attained year-end finalization of the government’s master
in the previous quarter. Easing consumer price plan for national employment could further
inflation boosted spending, although a slowdown improve the state of employment. The master
in tourism and leisure-related spending restrained plan, Trabaho Para sa Bayan (TPB), is a ten-year
the impact. This was due to unfavorable weather road map created to boost investments in priority
conditions that disrupted domestic mobility sectors, improve workforce employability, and
and brought about a higher incidence of flight strengthen labor market governance, with the
cancellations.29 aim of driving sustainable economic growth and
aligning skills with industry needs in the coming
Trade decade. 32
Exports recorded a contraction of 1.0 percent in
the third quarter, a major reversal compared to Inflation
the 4.2 percent growth in the second quarter. A October’s inflation accelerated to 2.3 percent year
sharp decline in the electronics products segment, on year on elevated food and utilities costs, higher
especially semiconductors, which shrank by 17.9 than the 1.9 percent recorded in September.

28
“Ad-delivery press statement of NEDA secretary Arsenio M. Balisacan on Philippines economic performance for third quarter of 2024,”
National Economic and Development Authority, November 7, 2024.
29
“Ad-delivery press statement of NEDA secretary Arsenio M. Balisacan on Philippines economic performance for third quarter of 2024,”
National Economic and Development Authority, November 7, 2024.
30
“GDP expands by 6.3 percent in the second quarter of 2024,” Philippine Statistics Authority, August 8, 2024.
31
“Philippines PMI,” Trading Economics, accessed November 2024.
32
“PH gov’t unveils comprehensive framework for 10-year employment plan,” Office of the President of the Philippines, June 29, 2024.

12 Southeast Asia quarterly economic review: Mixed growth

Despite the slight uptick in October, inflation Policy rate
numbers recorded within the third quarter were The central bank cut its policy rate by 25 basis
broadly lower than historically experienced since points to 6.0 percent in October, the second
2022. The improvement in inflation in the third rate cut in 2024. The decision came as inflation
quarter ensured that inflation remained within the remained within the central bank’s target range
central bank’s target of 2.0 to 4.0 percent. This of 2.0 to 4.0 percent and appears to remain
allowed the central bank to potentially cut interest controlled moving forward. The cut will hopefully
rates further after a reduction of 50 basis points provide more support to the economy, and further
in total at its last two meetings. 33 rate cuts have not been ruled out. 35

Financial markets Capital inflows

In the third quarter, the Philippines experienced a
Currency remarkable surge in foreign investment approvals,
The Philippines’ peso strengthened by about 5 reaching 146.75 billion pesos (US $2.49
percent over the third quarter. It has, however, billion)—a 434.4 percent increase compared to
depreciated since the US Fed rate cut was the same period in 2023. South Korea emerged
announced, which is in line with the broader as the top investor, contributing 53.72 billion
recovery of the US dollar. The third-quarter gain pesos (US $0.91 billion) or 36.6 percent of the
was almost entirely reversed by mid-November total commitments. The manufacturing sector
2024, although it may see a rebound soon, given attracted the lion’s share of investments, securing
the seasonal pick-up in overseas remittances 70.57 billion pesos (US $1.20 billion), equivalent
ahead of the year-end festive holidays. 34 to 48.1 percent of the total, underscoring its
pivotal role in driving the country’s economic
momentum. 36

33
“Monetary board reduces target RRP rate by 25 basis points,” Bangko Sentral Ng Pilipinas, October 16, 2024.
34
“Peso weakens further as Philippines economic growth slows in Q3,” Business World, November 7, 2024; “Philippine peso may yet
rebound on year-end remittance wave,” Bloomberg, November 10, 2024.
35
“Philippines monetary policy October 2024,” Focus Economics, October 17, 2024.
36
“Approved foreign investments reach PhP 146.75 billion in third quarter of 2024,” Philippine Statistics Authority, November 14, 2024.

Southeast Asia quarterly economic review: Mixed growth 13

 Singapore

Singapore’s economic landscape is looking rebounded strongly in the third quarter, with the
positive, and key indicators are robust. GDP global recovery in electronics demand providing
expanded by 5.4 percent in the third quarter, strong support, reversing multiple contractions
marking its best quarterly performance since in recent quarters. This also enabled non-oil
2022. The manufacturing, wholesale trade, and domestic exports (NODX) to yield a surprise upside
finance and insurance sectors were key growth (Exhibit 6). The labor market was at its strongest,
contributors. Manufacturing, in particular, with unemployment at its joint lowest in the past

Exhibit 6
Singapore’s
Singapore’s merchandise exports segmentproduction
exports and manufacturing continued its positive trajectory;
rebounded strongly in the
manufacturing contraction eased in the second quarter.
third quarter on the back of robust global demand.
Singapore exports vs industrial production,¹ % value growth
Exports Manufacturing
40

30

20

10

–10

–20
Q1 2018 Q1 2019 Q1 2020 Q1 2021 Q1 2022 Q1 2023 Q1 2024
1
Year-on-year change, quarterly, through Q2 2024.
Source: Countries’ national statistics offices; Oxford Economics

McKinsey & Company

14 Southeast Asia quarterly economic review: Mixed growth

five years. Inflationary pressures, meanwhile, Industrial activity
continued to ease. The manufacturing sector was a bright spark in the
third quarter, rebounding to expand by 11.0 percent
after seeing continued contractions in recent
Macroeconomic outlook quarters. All manufacturing clusters expanded,
with electronics (15.4 percent), biomedical
GDP manufacturing (8.8 percent), and precision
Singapore’s GDP expanded by 5.4 percent in the engineering (8.6 percent) being top-performing
third quarter, surpassing the previous quarter’s clusters over the quarter. 40 Manufacturing PMI
growth of 2.9 percent. This also marked the strengthened month by month throughout the
strongest quarterly expansion since 2022. The third quarter and continued to remain in the
manufacturing, wholesale trade, and finance and expansionary zone. PMI gradually rose from 50.4
insurance sectors were key growth engines in the in June 2024 to the end of the quarter at 51.0 in
third quarter, contributing to two-thirds of overall September. October, however, saw a minor decline
GDP growth. Meanwhile, consumer-facing sectors, to 50.8, although this is believed to be a minor
such as retail trade and food and beverages, saw blip, with the outlook for the manufacturing sector
contractions following slower tourist arrivals and remaining positive, supported by higher demand
weaker tourist spending. 37 toward the year-end festive period. 41

Consumption Labor
Consumption expenditure in the third quarter Singapore’s labor market continued to improve,
picked up pace, growing 6.3 percent year on year, with the third-quarter unemployment rate
higher than the 5.5 percent growth in the second declining to 1.8 percent, the joint lowest rate
quarter. Both private and public consumption recorded in the past five years. The market
improved in the third quarter, recording 6.9 experienced 26,700 new jobs. The services sector
percent and 4.5 percent growth from 6.2 and 2.8 mainly contributed to the growth, with more than
percent in the previous quarter, respectively. 38 15,000 new jobs created compared to the second
quarter. Retrenchments, meanwhile, declined
Trade during the third quarter. Hiring expectations in the
Singapore’s total merchandise trade growth fourth quarter appear stable, with services sectors
moderated to 5.5 percent in the third quarter, with particularly expected to boost hiring. 42
exports and imports seeing slower growth. The
quarter’s performance paled compared to the Inflation
second quarter of 2024, when overall merchandise Inflation further eased in the third quarter as
trade recorded a very strong expansion of 10.0 growth moderated to 2.2 percent from 2.8
percent. Despite the moderation, NODX, one percent and 3.0 percent in the second and first
of Singapore’s key trade performance markers, quarters, respectively. This easing was replicated
yielded a surprise upside of 9.2 percent growth in in almost all categories, including food, transport,
the third quarter after experiencing a shrinkage and communications, which were experiencing
in every quarter in 2023 and 2024. Both the continued decline. Early indications for the
electronics and non-electronics segments upcoming fourth quarter signal a potential
propped up NODX in the third quarter. 39 continued decline, as October’s inflation dropped

37
“Economic survey of Singapore third quarter 2024,” Ministry of Trade and Industry, November 22, 2024.
38
“Economic survey of Singapore third quarter 2024,” Ministry of Trade and Industry, November 22, 2024.
39
“Economic survey of Singapore third quarter 2024,” Ministry of Trade and Industry, November 22, 2024.
40
“Economic survey of Singapore third quarter 2024,” Ministry of Trade and Industry, November 22, 2024.
41
“PMI slows in October, making 0.2-point dip to 50.8,” Singapore Business Review, November 2024; “Singapore manufacturing PMI,”
Trading Economics, accessed November 2024.
42
“Economic survey of Singapore third quarter 2024,” Ministry of Trade and Industry, November 22, 2024.

Southeast Asia quarterly economic review: Mixed growth 15

 to 2.1 percent, the lowest seen since March maintained the prevailing appreciation rate of
2021. 43 the S$NEER policy band and left unchanged
the width and level at which the currency band
Financial markets is centered. MAS believes that the current policy
band will ensure medium-term price stability, with
Currency core inflation expected to ease further to around
The Singapore dollar strengthened by 5.4 percent 2 percent as the end of 2024 approaches. 45
against the US dollar in the third quarter, at
one point reaching a ten-year high as markets Capital inflows
reacted to the US Fed’s interest rate cuts. Since FDI net inflows saw a decline of 19 percent to
October, however, the Singapore dollar has eased US $35.01 billion (46.9 billion Singapore dollars)
against the US dollar and may continue to wane in the third quarter of 2024, while foreign
with expectations that the US economy could exchange (forex) reserves increased by US $5.1
experience a softer landing. 44 billion, reaching US $383.7 billion (514.16 billion
Singapore dollars) during the same period. 46
Policy rate
In its quarterly meeting in October 2024, the
Monetary Authority of Singapore (MAS)

43
“MAS monetary policy statement—October 2024,” Monetary Authority of Singapore, October 14, 2024.
44
Abigail Ng, “Singapore dollar could weaken in coming months, analysts say,” CNA, August 30, 2024.
45
“MAS monetary policy statement—October 2024,” Monetary Authority of Singapore, October 14, 2024.
46
“Singapore foreign direct investment—net inflows,” Trading Economics, accessed November 2024; “Official foreign reserves,”
Monetary Authority of Singapore, accessed November 2024.

16 Southeast Asia quarterly economic review: Mixed growth

Thailand

Thailand’s economy continued to pick up pace, growth slowed despite inflation having
growing 3.0 percent in the third quarter, marking moderated and the labor sector remaining robust.
the third consecutive quarterly expansion. Strong
investments, tourism, and exports helped drive The central bank unexpectedly cut its policy rate
growth in this quarter. Industrial production in October in a bid to further boost Thailand’s
held steady and derived a marginal 0.1 percent economy and raised its 2024 growth forecast
growth—the first back-to-back quarterly growth from 2.6 percent to 2.7 percent.
since 2022 (Exhibit 7). Private consumption

Exhibit 7
Exports
Exports continued
continued to
to pick
pickup
uppace
pace in
inline
linewith
withThailand’s
Thailand’sgrowth in in
growth thethe
third
third
quarter, but industrial production remain tepid.
quarter, but industrial production remained tepid.
Thailand exports vs industrial production,¹ % value growth
Exports Industrial production
40

30

20

10

–10

–20

–30
Q1 2018 Q1 2019 Q1 2020 Q1 2021 Q1 2022 Q1 2023 Q1 2024

1
Year-on-year change, quarterly, through Q3 2024.
Source: Countries’ national statistics offices; Oxford Economics

McKinsey & Company

Southeast Asia quarterly economic review: Mixed growth 17

 Macroeconomic outlook particularly the computer segment, where the
exports value doubled and increased by 146.5
GDP percent. Imports also grew strongly, recording
Thailand’s economy grew by 3.0 percent in the 11.3 percent growth in the third quarter compared
third quarter, faster than the 2.3 percent growth to 1.2 percent in the prior quarter. All import
in the second quarter, supported by stronger categories saw an expansion, driven by a higher
investment, tourism, and exports performance. demand for materials to support exports and
The services sector continued to drive growth, manufacturing production. 49
with the transportation and storage and the
accommodation and food services segments Industrial activity
attaining 9.0 and 8.4 percent growth, respectively. The manufacturing sector saw back-to-back
Construction rebounded and reversed the trend of quarterly growth for the first time since 2022,
three continuous quarters of contraction, growing although the pace of expansion was marginal at
15.5 percent. Manufacturing remained flat, 0.1 percent in the third quarter and lower than the
increasing 0.1 percent, while the agriculture sector 0.3 percent growth in the second quarter. Output
contracted for the fourth straight quarter. 47 was mixed across the manufacturing segments,
with electronics, computers, machinery, and
Private consumption refined petroleum products recording higher
Private consumption growth in the third quarter growth. At the same time, motor vehicles,
decreased to 3.4 percent from 4.0 percent in the motorcycles, and construction materials, such as
previous quarter. Most expenditure categories concrete, iron, and steel, saw slower production. 50
saw a slowdown in spending in the third quarter, PMI remained in expansionary territory in the
including food, utilities, clothing, vehicle third quarter, although the pace of expansion
purchases, and services such as healthcare, moderated with the index on a declining trend
transport, and entertainment. Consumer from 52.8 in July 2024 to 50.4 in September.
confidence was at its lowest since the second The reading declined to 50.0 in October as
quarter of 2023, with ongoing cost-of-living manufacturing business conditions stagnated but
concerns and the subdued economic outlook as saw marginal expansion to 50.2 in November. 51
key drivers. 48
Labor
Trade The unemployment rate in the third quarter fell
Trade activities saw robust growth in the third marginally to 1.02 percent from 1.07 percent in
quarter, with trade balance recording a trade the previous quarter. Although this represented a
surplus of US $5.8 billion from US $5.5 billion quarterly improvement, it was slightly higher than
in the previous quarter. The exports sector the 0.99 percent recorded in the same quarter
continued its turnaround story, growing by 8.9 in 2023. With structural changes continuing
percent in the third quarter, an improvement as sectors evolve, the critical need for workers
from the 4.5 percent growth in the second to reskill and upskill remains. For example, the
quarter and the 1.1 percent contraction in the automotive manufacturing sector is shifting from
first quarter. Agricultural and computer and producing internal combustion engine vehicles to
telecommunications exports saw healthy growth,

47
“Thai economic performance in Q3 of 2024 and the outlook for 2024–2025,” NESDC News, November 2024.
48
“Thai economic performance in Q3 of 2024 and the outlook for 2024–2025,” NESDC News, November 2024; “Press release on the
economic and monetary conditions for September and the third quarter of 2024,” Bank of Thailand, October 31, 2024.
49
“Thai economic performance in Q3 of 2024 and the outlook for 2024–2025,” NESDC News, November 2024.
50
“Thai economic performance in Q3 of 2024 and the outlook for 2024–2025,” NESDC News, November 2024.
51
“Manufacturing sector expands at softer rate in September,” S&P Global Thailand Manufacturing PMI, October 1, 2024; “Manufacturing
business conditions stagnate in October,” S&P Global Thailand Manufacturing PMI, November 1, 2024; “Marginal expansion of
manufacturing sector in November,” S&P Global Thailand Manufacturing PMI, December 2, 2024.

18 Southeast Asia quarterly economic review: Mixed growth

EVs and will need a qualified workforce to work on incorporating the evolving global economics and
EVs. 52 geopolitical narratives following the conclusion of
the US elections. 54
Inflation
Inflation softened to 0.6 percent in the third Policy rate
quarter, a decline from 0.8 percent recorded in Having kept the policy rate unchanged in its
the previous quarter. This decline was largely August 2024 meeting, the Bank of Thailand (BOT)
attributed to softer price increases in key unexpectedly cut it by 25 basis points to 2.25
categories, such as food, beverages, housing, and percent in October. The move represented the
utilities. 53 bank’s first rate cut in over four years and is hoped
to alleviate the debt servicing burden of borrowers
Financial markets and, at the same time, provide an impetus to
revive the country’s sluggish economy. The next
Currency policy review is slated for December 2024. 55
The Thai baht rallied in the third quarter to
appreciate to close to 12 percent against the US Capital inflows
dollar, at one point reaching its highest level in 31 In the third quarter, Thailand recorded an FDI
months against the greenback. The faster-than- inflow of 220.9 billion baht (US $6.2 billion), a
expected strengthening of the currency led the strong uptick from 156.4 billion baht (US $4.4
central bank to intervene to stabilize the currency billion) in the second quarter. 56 This brings the
as concerns grew over the excessive impact of a FDI value for the first nine months to 546.6 billion
strong baht on near-term growth—especially in baht (US $15.3 billion), a significant increase of
critical economic engines such as exports and 38 percent from the same period in 2023. The
tourism. The baht has depreciated by about 6 electronics, digital, and automotive sectors were
percent since the end of the third quarter, key to driving FDI in the third quarter. 57

52
“Unemployment rises by 1.02% in the third quarter,” Nation, November 26, 2024; “Thailand unemployment rate,” Trading Economics,
accessed November 2024; and, for further information, see the Thailand Board of Investment’s website: boi.go.th/en.
53
“Export value,” Bank of Thailand, accessed November 2024; “Thai inflation rate,” Trading Economics, accessed November 2024.
54
Somrendi Banchongduang, “Central bank intervenes in baht’s exchange rate,” Bangkok Post, October 1, 2024; “Thai businesses urge
central bank to take measures to stabilise baht,” Reuters, September 23, 2024.
55
“Monetary policy committee’s decision 5/2024,” Bank of Thailand, October 16, 2024; “Thai central bank unexpectedly cuts key rate by
25 basis points,” CNBC, October 16, 2024.
56
“Capital flows: Foreign direct investment statistics and summary January–June 2024,” Thailand Board of Investments, accessed
August 2024.
57
For further information, see the Thailand Board of Investment’s website: boi.go.th/en.

Southeast Asia quarterly economic review: Mixed growth 19

 Vietnam

Vietnam’s GDP grew 7.4 percent in the third an increase in high-quality investments in sectors
quarter of 2024, its third-highest growth in the such as semiconductors, energy, and electronics,
past five years. Strong production and exports further cementing Vietnam as a credible investment
performance and a rise in foreign investments destination. Inflation, meanwhile, eased this
propelled growth this quarter (Exhibit 8). FDI saw quarter.

Exhibit 8
Strong growth
Strong growthin inprivate
privateconsumption
consumptionand
andexports
exports propelled
propelled Vietnam
Vietnam to to
achieve stellar third-quarter
third-quartereconomic
economicgrowth.
growth.

Vietnam exports vs private consumption,¹ % value growth

Exports Private consumption
40

30

20

10

–10

–20

Q1 2018 Q1 2019 Q1 2020 Q1 2021 Q1 2022 Q1 2023 Q1 2024

1
Year-on-year change, quarterly, through Q3 2024.
Source: Countries’ national statistics offices; Oxford Economics

McKinsey & Company

20 Southeast Asia quarterly economic review: Mixed growth

Macroeconomic outlook Industrial activity
Growth in industrial activity accelerated to 9.59
GDP percent in the third quarter from 8.55 percent in
Vietnam’s GDP growth accelerated to 7.4 percent the previous quarter, despite a marked reduction
year on year in the third quarter from the revised in production in September. This was due to
7.09 percent year-on-year growth in the second temporary business closures and supply chain
quarter. The strong performance was attained delays following extensive flooding caused by
despite the severe impact of typhoon Yagi in typhoon Yagi. Processing and manufacturing
September. This performance enabled the sectors were key growth drivers, with 11.41
economy to grow by 6.82 percent year on year in percent expansion from 10.39 percent growth in
the first nine months of 2024, inching closer to the the second quarter. PMI, however, experienced
government’s target growth of 7.0 percent for the the major brunt of typhoon Yagi, declining to
year. The manufacturing and processing sectors 47.3 in September from 52.4 in August, signaling
were key growth drivers, having expanded by 11.4 significant deterioration in manufacturing
percent, the highest rate recorded since 2019. conditions following a spell of solid growth
The services sector expanded by 7.51 percent, throughout 2024.
mainly driven by strong tourism performance,
while the construction sector was another notable Labor
contributor, growing by 9.11 percent. 58 The unemployment rate fell marginally to 2.24
percent in the third quarter from 2.29 percent
Private consumption in the previous quarter. Meanwhile, the labor
Private consumption continued its recovery and force stood at 52.7 million people, an increase
rose by 7.02 percent in the third quarter from of 114,100 from the previous quarter. Improved
6.58 percent in the previous period, contributing economic conditions, supported by strong trade
59.78 percent to the economy’s overall growth performance, allowed more businesses to come
rate. Retail sales and tourism-related services onstream to absorb a larger workforce. Despite
increased by 8.4 percent year on year, close to the positive development, the labor market
pre-COVID-19 levels of 10.4 percent in 2019. 59 continues to be deemed volatile as 33 million
workers—a significant number—are still engaged
Trade in informal employment, representing over 60
Exports of goods recorded saw growth accelerate percent of total employment.
to 15.8 percent year on year in the third quarter
from 10.6 percent in the second quarter. For the Prices
first nine months of 2024, Vietnam’s exports rose Inflation eased marginally to 3.88 percent year on
by 15.4 percent year on year to US $299.6 billion, year for the first nine months of 2024, compared
while imports grew at a faster rate by 17.3 percent to 4.08 percent recorded in the previous quarter.
year on year at US $278.8 billion, indicating The food and beverage services segment saw
robust domestic activity. The United States was a larger increase of 4.0 percent in the first nine
Vietnam’s biggest export market, accounting months of the year. The latest reading brings
for a third of Vietnam’s exports, while China was Vietnam’s inflation slightly lower than its 2024
Vietnam’s top import partner, accounting for 38 target of 4.0 to 4.5 percent.61
percent of total imports into Vietnam.60

58
“Socioeconomic situation in third quarter and first nine months of 2024,” General Statistics Office of Vietnam, October 22, 2024.
59
“Socioeconomic situation in third quarter and first nine months of 2024,” General Statistics Office of Vietnam, October 22, 2024.
60
Nurluqman Suratman, “Vietnam Q3 economy grows 7.5% despite heavy typhoon losses,” ICIS, October 7, 2024.
61
“Vietnam’s CPI inches up 3.88 percent in nine months,” Star, October 6, 2024.

Southeast Asia quarterly economic review: Mixed growth 21

 Financial markets open for future rate cuts to support the recovery
of economic activities impacted by the recent
Currency typhoon.63
The Vietnam dong stood at a record low against
the greenback at the start of the quarter and Capital inflows
strengthened by about 4 percent by the end In the first nine months of 2024, FDI realized was
of September. The gain, however, was almost US $24.7 billion, an increase of 11.6 percent over
completely reversed in October following the the same period in 2023. In September alone,
global recovery of the US dollar, coupled with a Vietnam recorded an FDI inflow of more than US
slowdown in Vietnam’s trade surplus.62 $4.26 billion, accounting for 17.2 percent of the
total FDI registered in the first nine months of
Policy rate 2024. The country also saw a larger concentration
The central bank announced its intention to of higher-quality investments, particularly in
continue to pursue supportive monetary policies semiconductors, energy, and electronic products,
for the rest of the year. It plans to keep policy rates which is expected to support the proliferation of
at current levels while keeping the option innovation across Vietnam’s industries.64

62
Dan Nguyen, “Dollar nears 2-month high versus dong,” VN Express, October 21, 2024.
63
“Vietnam central bank says keep policy supportive, open to rate cuts,” Reuters, October 17, 2024.
64
“Vietnam’s FDI expected to hit 39–40 bln USD this year,” Vietnam Plus, October 20, 2024.

22 Southeast Asia quarterly economic review: Mixed growth

 In the spotlight

Southeast Asia: Pivotal in global supply chain diversification and

trade corridors

Southeast Asia is increasingly becoming a focal environments attract multinational

point in the reconfiguration of global trade and corporations seeking to establish or expand
supply chains. This transformation is driven by their manufacturing footprints. For instance,
several factors, including geopolitical shifts, Vietnam’s electronics and textile industries have
economic integration, and strategic investments seen substantial growth, driven by investments
in infrastructure. McKinsey’s insights reveal how from global giants looking to diversify their
the region is not only adapting to these changes operations.65
but also positioning itself as a critical hub in the
global trade network. Buttressing this is the Regional Comprehensive
Economic Partnership (RCEP), which includes
Global events such as the COVID-19 pandemic China and the ten Association of Southeast
and the invasion of Ukraine exposed significant Asian Nations (ASEAN) countries. 66 RCEP, the
vulnerabilities in global supply chains, prompting world’s largest trade agreement, reduces tariffs
companies to reconsider their reliance on single- and streamlines trade regulations, fostering
source suppliers. Southeast Asia presents greater economic integration within the region.
a compelling alternative: it offers a diverse This economic integration positions Southeast
manufacturing base, competitive costs, and Asia as a gateway for trade between East Asia,
a skilled workforce, making it an attractive South Asia, and beyond. As tariffs decrease
destination for businesses looking to mitigate and market access improves, intraregional
risks and enhance resilience. trade is expected to flourish, further solidifying
Southeast Asia’s role in the global trade network.
Countries such as Malaysia, Thailand, and This shift is beneficial for local economies
Vietnam are emerging as key players in and global companies seeking to tap into new
this diversification strategy. Their robust markets and consumer bases.
infrastructures and favorable business

65
“Diversifying global supply chains: Opportunities in Southeast Asia,” McKinsey, September 5, 2024.
66
For further information about the Regional Comprehensive Economic Partnership, see the Association of Southeast Asian Nation’s
website: asean.org.

Southeast Asia quarterly economic review: Mixed growth 23

 The development of new business corridors is Investments in ports, railways, and highways
another significant trend reshaping Southeast are not only improving regional connectivity but
Asia’s role in global trade. Strategic investments also integrating Southeast Asia more closely
in infrastructure are creating new economic with global supply chains. Such projects are
corridors that enhance connectivity and facilitate transforming the logistics landscape, making it
smoother trade flows. The vast network of trade easier and more cost-effective to move goods
routes will link Asia with Africa, China, and Europe. across borders.

Find more content like this on the Albert Chang and Denis Bugrov are senior partners in McKinsey’s Singapore office, where Kamaruzaman Kamarudin is
McKinsey Insights App a director of client capabilities; Joe Ngai is a senior partner in the Hong Kong office; and Debadrita Dhara is a knowledge
specialist in the Jakarta office.

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24 Southeast Asia quarterly economic review: Mixed growth