Southeast Asia quarterly economic review: Holding up strongly (2024)

Southeast Asia’s economies remained resilient and delivered credible economic performance in the second quarter 2024.1 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. GDP grew in all economies, with Malaysia, the Philippines, Thailand, and Vietnam recording the fastest rate of year-on-year (y-o-y) growth over the past four quarters. Indonesia experienced a growth plateau and Singapore grew 0.1 percent slower this quarter compared to the previous quarter (Exhibit 1). Growth drivers were nuanced in every Southeast Asian economy, across a combination of strong consumption, output expansion, and higher exports, following an improvement in global demand, especially in electronics.

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The resilient second quarter performance provides hope for a continuation of positive economic growth in the region. Growth outlook will, however, remain subject to both external and domestic risk considerations. The fragile external environment continues to provide mixed signals and various ongoing challenges, including geopolitical conflicts, could pose challenges to Southeast Asia’s growth momentum.

Regional economic overview

In this article, we focus on the economies of six countries in Southeast Asia: Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. We start by setting the scene with a regional overview.

Key indicator details can be found in Exhibit 2.

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

Indonesia remained resilient and grew 5.05 percent y-o-y in the second quarter 2024. Although this is marginally lower than the 5.11 percent growth recorded in the first quarter, it marked the third straight quarter of above 5.0 percent expansion for Southeast Asia’s largest economy. Industrial production and exports performed stronger this quarter following an improvement in global demand for commodities, while private consumption, which accounts for half of Indonesia’s GDP, held steady (Exhibit 3). FDI kept its momentum and continued to grow at double-digit pace. Solid domestic demand, capital spending, and strong exports are expected to continue supporting the economy for the remainder of 2024, as the country seeks to push toward its growth target of 5.2 percent for 2024.

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Macroeconomic outlook

GDP: Indonesia maintained its growth momentum to record 5.05 percent y-o-y growth in second quarter 2024, following a 5.11 percent rise in the first quarter. Investment growth accelerated while household spending held steady, buffering sluggish public consumption that grew 1.42 percent compared to nearly 20.0 percent expansion the prior quarter. From a sector viewpoint, accommodation and food services led gains, expanding 10.17 percent, while transportation and warehousing rose 9.56 percent.2“Indonesia keeps growth above 5% as Prabowo’s stimulus looms,” The Edge Malaysia, August 5, 2024.

Private consumption: Household consumption, which accounts for over half of the country’s GDP, closely matched first quarter performance, expanding 4.93 percent. Spending during religious and school holidays and an increase in income over the harvesting season helped to support consumption.3“Indonesian’s GDP growth holds just above 5% in Q2,” Channel News Asia, August 7, 2024.

Trade: Trade gathered pace as exports grew at 8.28 percent and imports at 8.57 percent, well ahead of previous quarter’s 1.37 percent and 1.93 percent, respectively. Strong tourist visits contributed to service exports growth, while commodities such as coal and nickel, jewelry, machinery, and electrical equipment saw higher shipments, which boosted exports performance.4Gayatri Suroyo and Ananda Teresia, “Indonesia records $3.56 billion trade surplus in April, above forecast,” Reuters, May 15, 2024. In Indonesia’s statistical agency’s latest July release, exports continued its growth momentum, albeit at slightly slower pace, clocking 6.46 percent y-o-y growth, spurred by mining exports.5“Indonesia books trade surplus for 51 consecutive months,” Jakarta Globe, August 15, 2024.

Industrial activity: Manufacturing output grew 3.95 percent this quarter, marginally lower than the 4.13 percent growth recorded in the previous quarter. Iron and steel (18.07 percent growth), chemicals, pharmaceutical, and the food and beverage segments saw firm demand and were the stronger performing sectors during the quarter.6Jayanty Nada Shofa,“Indonesian economy grows 5.05 pct in Q2 2024,” Jakarta Globe, August 8, 2024. Manufacturing PMI continued its declining trend post-March 2024, clocking 49.3 in July, which marked the first contraction in factory activity since August 2021. Tepid domestic demand, high raw material imports, the fluctuating rupiah, and global supply chain disruptions were cited as possible reasons for the drop in output and new orders, ending Indonesia’s 34-month streak of PMI being in expansionary range.7“Jokowi worried about Indonesia’s declining manufacturing PMI,” Jakarta Globe, August 12, 2024.

Labor: Indonesia’s statistical agency’s latest release of Indonesia’s labor market figures in first quarter 2024 indicated a decline in the unemployment rate to 4.82 percent from 5.45 percent in the same quarter 2023. This marked the lowest level of unemployment seen since 1997. The employed force, though, is still dominated by workers in informal sectors, emphasizing the importance for the country to continue its push to attract high quality investments and to improve education and training, among others, as part of bid to expand the formal workforce.8“Minister Effendy confirms decline in Indonesia’s unemployment rate,” Antara, August 8, 2024.

Inflation: Inflation continued its decline, having recorded 2.13 percent in July 2024, from 3.06 percent and 2.51 percent in the last quarter and in June 2024, respectively. July’s inflation marked the lowest recorded in Indonesia since February 2022, with almost all expenditure categories seeing less than 2 percent inflation, except for the food and beverages, restaurant, and personal care segments.9“Indonesia’s July inflation rate eases lowest February 2022,” Business Times, August 1, 2024.

Financial markets

Currency: The Indonesia rupiah depreciated by 8.0 percent y-o-y against the US dollar during second quarter 2024 and reached a four-year low in late June. Bolstered, however, by recent growing confidence in upcoming US policy rate cuts, the rupiah has seen a small turnaround from July to August 2024, strengthening by 2.8 percent.10“Indonesia set to hold rate as rupiah strength may be short-lived,” Bloomberg, August 8, 2024.

Policy rate: Bank Indonesia (BI) announced in August its decision to maintain its benchmark interest rate at 6.25 percent, thereby extending its stance for a fourth straight meeting. The central bank continues to advance its pro-stability monetary policy to support the rupiah, which has also helped keep inflation in check. BI has further indicated that a rate cut could potentially be considered, but only in the fourth quarter.11“Bank Indonesia maintains benchmark interest rate at 6.25 pct,” Jakarta Globe, August 7, 2024.

Capital flows: FDI inflows rose by 16.6 percent y-o-y in the second quarter to US $13.51 billion, slightly higher than the 15.5 percent growth rate of first quarter. Second quarter numbers were bolstered by investments in smelters within the metals refining industry. From a country perspective, the largest sources of FDI in the second quarter were China, Hong Kong, Singapore, South Korea, and the United States.12“Indonesia’s FDI rises 17% in Q2, propped up by smelter investment,” Business Times, July 29, 2024.

Malaysia recorded a stellar second quarter, with the economy firing across various cylinders. Economic growth accelerated to 5.9 percent this quarter; the highest growth recorded since the start of 2023. Expansion in exports and strong domestic demand supported growth (Exhibit 4). The labor market remained tight while industrial output expanded, and investment activities continue to be robust. The ringgit held steady during the quarter, becoming one of the best performing currencies in the region, while inflation experienced a nominal increase.

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The economy remains on course to achieve the government’s projection of 4 to 5 percent for 2024. Growth for the second half of 2024 is expected to be supported by firm domestic demand and further improvement in external demand.13“Economic and financial development in Malaysia in the second quarter of 2024,” Bank Negara Malaysia, August 16, 2024.

Macroeconomic outlook

GDP: Malaysia’s economy expanded strongly in the second quarter with a 5.9 percent growth, driven by strong domestic demand and exports expansion. This is higher than the first quarter’s 4.2 percent growth and is the highest growth rate recorded since the start of 2023. Most sectors recorded increased growth this quarter, notably key sectors such as services and manufacturing, which expanded 5.9 and 4.7 percent, respectively. The construction sector saw higher activities grow 17.3 percent while agriculture expanded 7.2 percent. Mining grew slower at 2.7 percent following a production disruption in May.14“Economic and financial development in Malaysia in the second quarter of 2024,” Bank Negara Malaysia, August 16, 2024.

Private consumption: Private consumption expanded 6.0 percent in the second quarter, higher than the 4.7 percent growth recorded in the first quarter 2024. Strong labor market conditions and policy support, including cash handouts and tax incentives aimed at curbing rise in cost of living, have helped to boost consumption.15“Economic and financial development in Malaysia,” August 16, 2024.

Trade: Exports clocked in strong performance, achieving 5.8 percent growth in second quarter, more than double the first quarter’s 2.0 percent growth. The second quarter saw a turnaround in electrical and electronics (E&E) and commodity exports, attributed to higher demand and positive effects from the global tech upcycle. Strong domestic demand for capital and consumption goods, meanwhile, allowed imports to build on first quarter growth of 12.5 percent to achieve 15.0 percent growth in second quarter.16“Economic and financial development in Malaysia,” August 16, 2024. The strong trade performance could enhance investor confidence and unlock new trade opportunities. July’s exports surge of 12.3 percent (the fastest growth in nearly two years), serves as an early indication of a possible strong trade performance in the upcoming third quarter.17“Malaysia’s exports surge 12.3% in July, fastest pace in nearly two years, official data show,” The Edge Malaysia, August 19, 2024.

Industrial activity: Manufacturing output grew 4.7 percent in second quarter, an improvement from first quarter’s 1.9 percent growth. Exports and domestic-oriented industries led the growth this quarter, including refined petroleum products; computer, electronics, and optical products; and vegetable and animal oils production.18“Malaysia’s industrial output up 5pct in June on higher output from manufacturing sector,” Business Times, August 9, 2024; “S&P global Malaysia manufacturing PMI,” S&P, August 2024. PMI, meanwhile, remained in the contractionary zone but saw an improvement from the previous quarter’s 48.4 in March 2024 to 49.9 and 49.7 in June and July, respectively.19“Economic and financial development in Malaysia,” August 16, 2024.

Labor: Malaysia’s unemployment rate continued to be anchored at prepandemic levels and remained low, yet they held steady and maintained the first quarter’s rate of 3.3 percent. Labor demand continued to strengthen with overall employment increasing by 200,000 to 16.6 million persons in the second quarter, with a labor participation rate at an historic high of 70.5 percent, an improvement from 70.2 percent the previous quarter.20“Economic and financial development in Malaysia,” August 16, 2024.

Inflation: Inflation grew slightly to 1.9 percent in the second quarter, 0.2 percent higher than the previous quarter. Higher housing utilities prices such as water and electricity, which grew 31.8 percent and 2.0 percent, respectively, contributed to inflationary pressures. Price adjustments by firms over the festive period also impacted inflation. For the second half of 2024, the central bank expects inflation to edge higher, mainly due to the rationalization of diesel subsidies. Its impact, however, is expected to remain manageable as the government renders support to minimize cost impact to businesses.21“Economic and financial development in Malaysia,” August 16, 2024.

Financial markets

Currency: In the second quarter 2024, the ringgit held steady and ended the quarter at a similar US dollar exchange level as the end of first quarter. Unlike most regional currencies, which depreciated during the second quarter, the ringgit appeared cushioned in part due to coordinated government actions and the central bank’s attempts to encourage consistent and timely inflows into the foreign exchange market. With the heightened expectations of an upcoming US policy rate cut, the ringgit has since strengthened by close to 5 percent in August.22“Economic and financial development in Malaysia,” August 16, 2024.

Policy rate: In the latest policy meeting in July 2024, the central bank opted to maintain its policy rate at 3 percent, as it expects global growth, and Malaysia’s, to remain sustained with inflation remaining manageable. It has been more than a year since the central bank revised its policy rate. The bank will continue to remain vigilant and ensure that its monetary policy stance is supportive of economic growth, while also facilitating price stability.23Monetary Policy Statement, Bank Negara Malaysia, July 11, 2024.

Capital flows: Malaysia’s FDI position increased by 16.2 billion ringgit in the second quarter 2024, greater than the 12.0 billion ringgit achieved in the first quarter. The services and production sectors are the largest beneficiary of FDI into Malaysia, with Hong Kong, Japan, Singapore, and the United States as the top investors.24“International investment position,” Department of Statistics Malaysia, August 16, 2024.

The Philippines’ economy accelerated to record a 6.3 percent y-o-y growth in the second quarter from 5.7 percent growth in the previous quarter. Government spending and investments drove stronger second quarter growth, which helped prop up the first-half GDP growth to 6 percent, which put the economy back on track to meet its full-year growth target of 6 to 7 percent. Household consumption growth, however, remained tepid on the back of higher inflation, while manufacturing output and exports grew slower this quarter (Exhibit 5). The central bank cut its policy rate in mid-August by 25 basis points to 6.25 percent in a bid to continue to support the economy, becoming one of the first central banks in Asia to do so ahead of anticipated cuts by the US Federal Reserve.

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Macroeconomic outlook

GDP: The Philippines’ economy grew 6.3 percent in the second quarter from a year earlier, stronger than the 5.7 percent growth in the first quarter. The industries and services sector recorded 7.7 percent and 6.8 percent growth, respectively, while agriculture and forestry and fishing contracted 2.3 percent due to effects of El Niño. Expenditure wise, government spending and investments achieved a strong 10.5 percent and 11.5 percent growth respectively, which helped offset anemic consumption growth at 4.6 percent.25“PH economic growth accelerates to 6.3% in Q2 2024,” PNA, August 8, 2024.

Private consumption: Household consumption grew 4.6 percent y-o-y, on par with the previous quarter’s figure but slower than the 5.5 percent attained in the second quarter 2023. Household consumption, which accounts for two-thirds of the country’s output, has not grown as strongly as expected following the effects of inflation, with restaurants and hotels, health, clothing, and footwear spending seeing slower consumption levels.26“Philippine GDP grows 6.3 percent in 2nd quarter amid construction boom,” ABS CBN News, August 8, 2024.

Trade: Exports grew slower at 4.2 percent y-o-y in the second quarter, compared to the 8.4 percent y-o-y growth of the previous quarter. The chemicals, consumer electronics, and travel services segments were key exports’ growth drivers. Imports meanwhile grew faster at 5.2 percent, mainly driven by the import of services, marking a third consecutive quarter of increase.27“GDP expands by 6.3 percent in the second quarter of 2024,” Philippine Statistics Authority, August 8, 2024.

Industrial activity: Manufacturing production in the Philippines grew by 3.6 percent y-o-y in the second quarter with refined petroleum, chemicals, and electrical equipment production contributing to most of the growth. This is, however, slower than first quarter’s expansion of 4.5 percent. Manufacturing PMI in July remained above the 50.0 threshold but declined for the third straight month and stood at 51.2, a small decline from 51.3 in June. While manufacturers broadly remain optimistic about future production, some caution exists following signs of cooling global demand.28“Philippines PMI July 2024,” Focus Economics, August 8, 2024.

Labor: The country’s unemployment rate for June 2024 declined to 3.1 percent, having recorded 3.9 percent at the end of previous quarter. June’s unemployment level matches the record low set in December 2023, which is also the lowest unemployment rate in nearly two decades. The government’s implementation of infrastructure projects, improving manufacturing conditions, and increased investments in sectors such as renewable energy, utilities, and mining created new employment opportunities and supported employment growth.29“Unemployment rate dips to 3.1% in June,” Malaya Business Insight, August 8, 2024.

Inflation: July’s inflation accelerated to 4.4 percent y-o-y on elevated food and utilities costs, higher than 3.7 percent recorded in June. July’s inflation was the highest recorded in the past nine months and is the first time in 2024 that it breached the central bank’s 2 to 4 percent target inflation range.30“Philippine CPI quickens in July, rate cut ‘little less likely,’” Channelnewsasia, August 6, 2024. The government will look toward managing food inflation with appropriate supply side measures, including recently reducing import tariff on rice, a major contributor to food inflation.31“PH economic growth accelerates to 6.3% in Q2 2024,” PNA, August 8, 2024.

Financial markets

Currency: The Philippines peso has been on a downward trend against the US dollar since early 2024 and further depreciated in the second quarter. It reached as low as 58.8 peso per US dollar in June, its weakest performance since October 2022. The peso has, however, strengthened slightly post-August and currently appears stable following the Philippines’ central bank’s rate cut and the possible policy easing by the US Federal Reserve.32“Philippine’s Peso may weaken to 60:$, says analyst,” Philippines Star, July 11, 2024.

Policy rate: The central bank cuts its policy rate by 25 basis points to 6.25 percent, the first cut in nearly four years. In doing so, it became one of the first central banks in Asia, aside from China, to cut rates ahead of anticipated cuts by the US Federal Reserve. Hopefully the cut will provide support for the economy, while inflation looks to remain controlled. Further rate cuts later this year have not been ruled out.33“Philippine Central Bank cuts rates, flags more easing,” Reuters, August 15, 2024.

Capital inflows: FDIs posted a net inflow of US $499 million in May, the lowest recorded level for the past 16 months and down 1 percent y-o-y. This marks the second consecutive month of y-o-y decline as investors grapple with high inflation and geopolitical tensions

Despite the recent declines, the five months’ FDI still grew by 15.8 percent y-o-y to US $4.0 billion, with the central bank forecasting US $9.5 billion in FDI for the full year 2024.34“FDIs in Philippines fall to a 16-month low as high rates, geopolitical tensions bite,” Asia News Network, August 14, 2024.

Southeast Asia’s economies: Softening but still strong

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Singapore’s GDP grew at 2.9 percent y-o-y in the second quarter 2024, closely mirroring its first quarter growth of 3.0 percent. Total merchandise trade recorded strong 10.1 percent growth, backed by accelerated growth in both merchandise exports and imports (Exhibit 6). Consumption saw growth moderating from 6.3 percent to 5.8 percent this quarter, while inflation showed signs of gradual decline and the employment market remained on a firm footing.35“Economic survey of Singapore second quarter 2024,” Ministry of Trade and Industry, August 13, 2024.

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Macroeconomic outlook

GDP: Singapore attained 2.9 percent y-o-y GDP growth for the second quarter 2024, slightly lower than the 3.0 percent growth recorded in the previous quarter. The services sector grew 3.7 percent this quarter, moderating from 4.3 percent in the previous quarter, with finance and insurance, wholesale trade, and info-comms sectors being top GDP contributors. The manufacturing sector contracted 1.0 percent in the second quarter, easing from the 1.7 percent contraction in the previous quarter—biomedical and precision engineering saw a decline while electronics saw a positive turnaround to grow 3.3 percent from a 4.3 percent contraction in the previous quarter. The construction sector, meanwhile, saw slower growth of 3.8 percent (from 4.1 percent growth in the previous quarter).36“Economic survey of Singapore,” August 13, 2024.

Consumption: Consumption expenditure in the second quarter grew 5.8 percent y-o-y, moderating from the 6.3 percent growth attained in the previous quarter. Private consumption saw higher growth of 6.5 percent this quarter (from 5.8 percent in the previous quarter), but public consumption slowed to 3.1 percent (from 6.0 percent in the first quarter).37“Economic survey of Singapore,” August 13, 2024.

Trade: Singapore’s total merchandise trade recorded a 10.1 percent growth in the second quarter, building on its 4.8 percent growth in the first quarter. This quarter saw merchandise exports growth quicken to 7.6 percent, similarly imports, which expanded by 12.8 percent.38“Economic survey of Singapore,” August 13, 2024. This, however, masks the performance of non-oil domestic exports (NODX), which fell 6.4 percent in the second quarter following volatile pharmaceutical demand, faster than the 3.4 percent decline in the first quarter. Although July saw NODX rebound by 15.7 percent, the downside risks remain in the second half 2024. Support could come largely from electronics recovery, driven by demand for AI servers and consumer devices.39“Singapore lowers 2024 outlook for key exports to 4–5% growth,” Straits Time, August 13, 2024.

Industrial activity: The manufacturing sector contracted by 1.0 percent y-o-y in the second quarter, easing from the 1.7 percent contraction seen in the previous quarter. The sector was weighed down by biomedical manufacturing, which saw a sharp 32 percent decline in pharmaceutical output, as well as precision engineering, which contracted by 2 percent. Transport engineering, chemicals, and electronics were the stronger performing clusters this quarter, growing between 3.3 to 9.9 percent.40“Economic survey of Singapore,” August 13, 2024. Manufacturing PMI remain rangebound at 50.7 in July 2024, compared to 50.4 in June and 50.7 at the end of the first quarter. This marks the 11th consecutive month that Singapore’s PMI has remained above the 50.0 expansionary mark.41“Singapore PMI rises in July, mirroring growth in region wide factory activity,” Business Times, August 3, 2024.

Labor: Singapore’s unemployment rate stood at 2.0 percent in the second quarter 2024, marginally lower than the 2.1 percent in the previous quarter. Retrenchments held steady at 3,100 in the second quarter compared to 3,030 in the first quarter of 2024. Driven by construction and manufacturing demand, total employment grew by 11,300 this quarter, outpacing 4,700 new jobs the previous quarter.42“Unemployment rate in Singapore down across the board in June: MOM report,” Straits Times, August 2, 2024.

Inflation: Inflation continued to moderate in the second quarter as it declined to 2.8 percent y-oy from 3.0 percent in the previous quarter. Except for clothing and footwear, which saw a deflation this quarter, all other categories saw an increase in prices, although the pace of increase continued to taper compared to the preceding quarters.43“Economic survey of Singapore,” August 13, 2024.

Financial markets

Currency: The Singapore dollar broadly maintained its exchange levels against the US dollar in the second quarter. Post-August 2024, and with recent signs pointing toward potential upcoming US policy rate cuts, the Singapore dollar has since strengthened slightly by about 0.75 percent.44“MAS monetary policy statement,” Monetary Authority of Singapore, August 1, 2024.

Policy rate: In its quarterly meeting in July 2024, the Monetary Authority of Singapore (MAS) maintained the prevailing rate of the S$NEER policy band and left unchanged the width and level at which the currency band is centered.45S$NEER is the Singapore dollar nominal effective exchange rate. The MAS believes that the current policy band will ensure medium-term price stability and keep imported inflation and domestic cost pressures in check.

Capital inflows: FDI net inflows saw a slight growth of 2.2 percent to US $42.0 billion in the second quarter 2024, while foreign exchange (forex) reserves increased by US $3.5 billion, reaching US $357.6 billion during the same period.46For FDI inflows: Trading Economics database, accessed August 2024; for forex reserves: CEIC Data Global database, accessed August 2024.

Thailand’s economy continues to lag the region, although it can take several positives from its second quarter performance. GDP grew accelerated to 2.3 percent this quarter, from 1.6 percent growth recorded in the previous quarter. Exports and production both returned to positive territory in the second quarter, growing at 4.5 percent and 0.2 percent, respectively, the latter particularly seeing its first growth since 2022 (Exhibit 7). Inflation moderated slightly while unemployment saw a minor uptick.

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Thailand expects full-year 2024 growth of between 2.3 to 2.8 percent. Recovery in tourism, strong domestic and government consumption, investments, and exports recovery are expected to drive the economy in the near term.

Macroeconomic outlook

GDP: Thailand’s economy grew by 2.3 percent in second quarter 2024, faster than the 1.6 percent growth attained in the first quarter. This brings the first-half 2024 growth to 1.9 percent, lagging the government’s projected 2.3 to 2.8 percent expansion for the year. The second quarter was driven by private and government consumption, as well as exports. From a production angle, the accommodation and food services sector had the highest growth, expanding 7.8 percent, backed by strong domestic and international tourism receipts. Wholesale and retail trade grew slower at 3.0 percent, while manufacturing recorded a turnaround to grow 0.2 percent. Agriculture, forestry and fishing, along with construction, contracted.47“GDP: Gross domestic product: Q2 2024,” Office of the National Economic and Social Development Council, August 20, 2024.

Private consumption: Private consumption growth decelerated to 4.0 percent in the second quarter, having grown by 6.9 percent in the previous quarter. Expenditure on services saw growth more than halve, from 13.7 percent in the first quarter to 6.0 percent growth in the second quarter. Several services categories saw spending slow, including hotels and restaurants, financial and healthcare services, education and arts, and entertainment and recreation.48“Private consumption: Gross domestic product: Q2 2024,” Office of the National Economic and Social Development Council, August 20, 2024.

Trade: Exports grew 4.5 percent to US $73.3 billion, reversing the 1.1 percent contraction experienced in the first quarter. Agricultural commodities and manufacturing products were key export growth sectors. Imports were recorded at US $67.8 billion, an increase of 1.2 percent, though slower than 3.3 percent in the preceding quarter.49“Trade: Gross domestic product: Q2 2024,” Office of the National Economic and Social Development Council, August 20, 2024.

Industrial activity: The manufacturing sector expanded by 0.2 percent in the second quarter, reversing the 3.0 percent decline recorded in the previous quarter. This marked a halt to six consecutive quarterly contractions, although the quarter’s growth wasn’t seen to be consistent across sectors, with domestic-oriented industries faring better to grow at 2.5 percent, while export-oriented industries contracted by 1.5 percent. The stronger performing industries in the second quarter include oil palm, animal food, and starch products, which all saw double-digit growth.50“Industrial activity: Gross domestic product: Q2 2024,” Office of the National Economic and Social Development Council, August 20, 2024. PMI came in at 51.7 in June and rose further to 52.8 in July, a stark contrast from the contractionary positions recorded in the first quarter. July’s position was also the highest recorded for over a year, bolstered by improving business confidence that has contributed to a faster rise in output and new orders’ volume stabilizing.51“Industrial activity,” August 20, 2024.

Labor: The second quarter’s unemployment rate inched up slightly to 1.1 percent from 0.98 percent in the previous quarter. The number of unemployed workers rose by 19,000 during the quarter to an estimated 379,000 as of June. Thailand’s employment, meanwhile, saw a slight decline to 66.8 percent from 67.0 percent in the first quarter.52“Labor: Unemployment slightly rises in 2nd quarter,” Nation, August 20, 2024.

Inflation: Inflation came in at 0.6 percent in June, down from the 1.5 percent peak in May. This decline was largely driven by a softer increase in prices for food and beverages, as well as in housing and utilities.53“Inflation: June inflation in Thailand sees a big drop over the previous month,” Nation, August 20, 2024. In the first six months of 2024, the average annual headline inflation was flat at 0.0 percent, with the core rate at 0.41 percent. The government has retained its headline inflation forecast for the year at between 0.0 to 1.0 percent.

Financial markets

Currency: The baht depreciated slightly over 6 percent against the US dollar in the second quarter, trading at 36.4 baht to the dollar. It has, however, since rebounded by close to 7 percent up to August against the dollar, the highest level in nearly 13 months, following anticipation that the US Federal Reserve may start trimming US interest rates in September.54“Currency: Thai baht, Indonesian rupiah hold ground after rate pause; all eyes on US Fed,” The Edge Malaysia, August 21, 2024.

Policy rate: The Bank of Thailand (BOT) kept its key interest rate unchanged at 2.5 percent in its most recent August 2024 meeting. This marks the fifth straight meeting that BOT has kept its rate constant, having previously raised the key rate by 200 basis points to the current level over eight meetings between August 2022 and September 2023. The central bank believes the current rate is consistent with prevailing economic realities and conducive to safeguard macrofinancial stability. The next policy review is slated for October 2024.55“Policy rate: Thai central bank holds key rate as it waits for stimulus clarity,” Channel News Asia, August 21, 2024.

Capital inflows: FDI inflows reached US $9.5 billion in second quarter, more than double from the US $4.6 billion in investments achieved in the previous quarter. The machinery and automobile sectors received the highest share of investments at 21 percent, followed by electronics and metal industries, accounting for 19 and 12 percent, respectively.56“Capital flows: Foreign direct investment statistics and summary January–June 2024,” Thailand Board of Investments, accessed in August 2024.

Vietnam’s economy accelerated in the second quarter 2024, as GDP growth increased to 6.9 percent compared to the previous quarter’s 5.6 percent. The industry and services sectors led the quarter’s growth, buoyed by robust growth in manufacturing. Private consumption further improved and is poised for a strong expansion throughout 2024, while the exports sector continued its growth momentum following a recovery in global demand, supported by key sectors including smartphones, electronics, and textiles (Exhibit 8). FDI achieved notable growth this quarter, further cementing Vietnam as a credible investment destination. Inflation, however, continued to rise, driven by wage hikes that put pressure on the central bank’s policy rate stance.

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Macroeconomic outlook

GDP: Vietnam’s GDP growth accelerated to 6.9 percent y-o-y in the second quarter from 5.6 percent y-o-y growth in the first quarter, allowing the country to inch closer to the government’s target growth of 6.0 to 6.5 percent for 2024. Manufacturing was a key growth driver, having expanded by 11 percent. Industry and services sectors recorded strong performance and expanded by 8.3 percent and 7.1 percent, respectively. The construction sector also showed strong recovery, growing by 7 percent, driven by acceleration in public spending.57“Socioeconomic situation report in second quarter and first 6 months of 2024,” General Statistics Office of Vietnam, July 29, 2024.

Private consumption: Private consumption continued its recovery and rose by 6.58 percent in the second quarter of 2024 from 4.9 percent in previous period. Retail sales and tourism-related services increased by 8.6 percent y-o-y, close to the pre-COVID-19 levels of 10.4 percent in 2019.58Nguyen Thi Huong, “Positive economic growth in second quarter 2024,” VNEconomy, July 30, 2024.

Trade: Exports recorded another strong quarter, growing at 12.5 percent in the second quarter 2024, albeit lower than 18.0 percent record in the previous quarter. For the first six months of the year, exports amounted to US $189.5 billion, up 14.2 percent y-o-y. Manufacturing remained important, contributing 70.0 percent of total exports value, led by key categories including telephones and components (16.9 percent y-o-y growth); computers, electronic devices, and components (16.1 percent y-o-y growth); and textiles and garments (12.5 percent y-o-y growth). Downside risks, however, remain high and exports momentum could be derailed if global growth slows down, geopolitical tensions persist, or trade disputes intensify.59“Optimistic export performance in H1, 2024,” Vietnam Business Forum, July 30, 2024.

Industrial activity: Growth in industrial activity accelerated to 8.55 percent in the second quarter from 6.2 percent in the previous quarter. Manufacturing and electricity were the two fastest-growing subsectors, expanding by 10.04 percent and 14.15 percent, respectively.60“Socioeconomic situation report in second quarter,” July 29, 2024. PMI rose sharply to 54.7 in June after hovering within the 45.0 to 50.0 range for the past two years. This marked a strong turnaround in the production sector, thanks to a promising recovery in external demand.61“New order growth surges to near-record high,” PMI by S&P Global, July 29, 2024.

Labor: In the first six months of 2024, the labor force stood at 52.5 million people, an increase of 196.6 thousand people over the same period last year. The unemployment rate remained steady at 2.29 percent. Meanwhile, the average monthly income of Vietnamese workers in the first six months of the year recorded a y-o-y increase of nearly 7.4 percent.62Nhat Duong, “Labor market shows sign of recovery,” VnEconomy, July 29, 2024.

Prices: Inflation grew to 4.08 percent y-o-y in the second quarter, up from 3.77 percent and 3.5 percent in the two previous quarters. Inflation has remained above the 3 percent mark since September 2023 and the latest uptick followed a recent hike in salary levels.63Lien Hoang, “Vietnam GDP grew 6.93% in Q2 with risks to recovery ‘high,’” Nikkei Asia, July 29, 2024.

Financial markets

Currency: The Vietnam dong depreciated by 8 percent against the US dollar in the second quarter 2024, peaking at 25,352 VND against the greenback, to become one of the region’s worst performing currencies this quarter. A confluence of both domestic and global factors has had a negative effect on the currency to date.64“ADB keeps Việt Nam’s growth outlook unchanged,” Vietnam News, July 29, 2024.

Policy rate: Vietnam’s central bank has kept policy rates unchanged so far in 2024 and appears to be taking a cautious stance on the back of a weakening dong, rising inflation, and expected US Federal Reserve rate cuts in the medium term.65Van Phat, “Vietnam’s economy gradually brightens in H2: UOB,” VietnamExpress, July 29, 2024. In the medium and long term, as major economies cut their interest rates, Vietnam’s central bank will have more room to reduce interest rates and support economic growth.

Capital inflows: FDI is one of the key highlights of the quarter, with FDI realized recorded at US $6.2 billion in second quarter, up from US $4.6 billion in the first quarter. Meanwhile, total FDI registered reached US $15.2 billion in the first half of 2024, an increase of 13.1 percent over the same period last year. The strong performance could spur the country’s economy in the immediate quarters, and it supports Vietnam’s position as an important investment destination for foreign businesses as they look to diversify their global supply chain footprint.66“Vietnam’s economy gradually brightens in H2,” July 29, 2024.

Our analysis these six Southeast Asian countries’ economies shows that most of them achieved their highest growth in the past four quarters, demonstrating the resilience with which they have withstood the global economic environment, and in contrast to global sentiments.

Globally, economic performance is also resilient, echoing that of Southeast Asia’s. McKinsey’s July 2024 Global Economics Intelligence executive summary presents a cautiously optimistic economic outlook, with growth observed across various sectors, despite existing challenges. Economic growth is accelerating, with notable improvements in both the manufacturing and services sectors. The United States, for instance, has shown strong growth driven by consumer spending, nonresidential investment, and inventory buildup. The Eurozone experienced modest growth, especially in the services sector, while emerging economies displayed mixed results. China's GDP growth has slowed but remains positive, whereas India's industrial production has accelerated.

Monetary policies have varied, with the People’s Bank of China reducing interest rates to counteract slowing growth, while other central banks have kept their rates unchanged. (Though since July, monetary policies appear to be turning dovish. Several central banks, such as those of Canada, China, Japan, and the United Kingdom, have started to unwind policy rates to support growth, and the US Federal Reserve has given the strongest indication yet that it could cut interest rates in the very near term.) Consumer confidence has declined due to higher prices, although spending patterns vary.

Inflation rates differ across regions, with the United States seeing a 3 percent annualized rise in the CPI in June, and the Eurozone experiencing a slight decrease in headline inflation. Commodity prices have fallen but are still above prepandemic levels. Unemployment rates have shown mixed results, with increases in India and the United States but declines in other economies. Trade and global supply chains have seen some improvements, with a slight increase in world trade volume.

Potential threats to global growth in July 2024 include geopolitical instability, political leadership transitions, changes in trade policy and relationships, weak demand, high inflation—notably in Greater China and North America—and rising unemployment rates. These factors contribute to the cautious optimism and concerns about a potential recession globally.

Region by region, the risks to domestic growth vary. In Asia, weak demand poses the biggest threat, while in the United States, transitions of political leadership are a primary concern. For Europe and India, a demand-led recession is seen as the most likely scenario. In Greater China and North America, the main concerns are high inflation and slowing growth. Additionally, geopolitical instability and political leadership transitions are considered top risks to global growth, with changes in trade policy and relationships increasingly viewed as threats, particularly in Greater China.

While these global risks to the economy are not trivial, markets in Southeast Asia have shown to be resilient in the second quarter. Vietnam’s economy, for instance, appears to be accelerating robustly, as is the Philippines’. And there are opportunities to be taken, especially in certain sectors.Where all this heads remains to be seen.