Southeast Asia’s economies exhibited robust performance in the fourth quarter 2023. GDP grew in all economies, with growth in Indonesia, Singapore, Thailand, and Vietnam increasing during this period, while Malaysia and the Philippines recorded slower growth (Exhibit 1).1 Strong domestic demand, backed by stable employment prospects and easing prices, along with a continued recovery of the services sector—particularly tourism—and early signs of improvement in exports demand supported growth.
The view for 2024 is cautiously optimistic. All Southeast Asian economies are forecasting better performance, while acknowledging ongoing challenges. Strong private consumption could be boosted if prices remain moderated and the employment market tight, and government stimulus programs could also provide support. In addition, external demand from a potential uptick in the electronics market and a rebound in international tourism could bode well for the region. The external environment, however, remains highly uncertain and fragile. Geopolitical tensions, such as that between China and the United States, continue to be prevalent; recessionary risks exist in major economies in Europe and the United States; and the economic prospects in China are uncertain.
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.
In the following section, we focus on the six specific countries in Southeast Asia, examining their macroeconomic conditions and financial markets.
Indonesia
Indonesia’s fourth quarter GDP growth increased slightly to 5.04 percent, after it fell to below 5.0 percent in the previous quarter for the first time in two years. This brought 2023 GDP growth to 5.05 percent for 2023—a decline from 5.3 percent in 2022—as the economy reeled from the effects of falling commodity prices and export contraction for most of 2023.
The fourth quarter saw exports grow, reversing a contraction from the previous quarter as demand from key trading partners such as China, India, and the United States rebounded (Exhibit 3). The rupiah strengthened while inflation trended downwards. Other core indicators, including consumption and industrial production, did not perform as well as in the third quarter, while the unemployment rate closed higher at 5.5 percent in the fourth quarter 2023.
Macroeconomic outlook
GDP: Indonesia recorded 5.04 percent year-on-year (y-o-y) economic growth in the fourth quarter 2023, marginally higher than the 4.9 percent growth observed in the preceding quarter.4 All sectors in the fourth quarter performed positively, with the highest growth recorded in the transportation and logistics sector, which grew 10.3 percent y-o-y in this quarter.5 Meanwhile, fixed investment growth declined to 5.0 percent y-o-y in the fourth quarter from 5.8 percent in the third quarter. This was driven by a slowdown in investment in machinery, equipment, and motor vehicles. Infrastructure development and capital investment were the main drivers for investment growth in this quarter, supported by government capital expenditure.6
Private consumption: Private consumption grew by 4.5 percent y-o-y in the fourth quarter, but was lower than the 5.1 percent attained in the previous quarter. Purchasing power appears stable, consumer confidence improved, and, in this quarter, private consumption was supported by a rise in domestic travel during the Christmas and New Year festive periods. Consumption by nonprofit institutions serving households (NPISH) recorded strong 18.11 percent y-o-y growth as activity ramped up ahead of the general election. Accommodation and food service activities, as well as wholesale and retail trade, also contributed to consumption expenditure growth in this quarter.7
Trade: In the fourth quarter 2023, exports increased by 1.6 percent y-o-y, reversing the 4.3 percent y-o-y decrease in the preceding quarter. The impact from falling prices on key commodities, such as coal, palm oil, and nickel, was mitigated by overall strong exports demand from Indonesia’s main trading partners, including China, India, and the United States, along with recovery in service exports such as tourism.8 Concurrently, imports contracted by 0.2 percent y-o-y compared to 11 percent contraction in the third quarter.9
Industrial activity: Industrial production growth slowed in the fourth quarter to 1.9 percent, compared to 3.48 percent in the previous quarter.10 This is mainly due to a slowdown in non-oil and gas industrial production, which grew at 4.5 percent y-o-y, lower than the 5.0 percent y-o-y in the previous quarter. There are, however, outliers such as the basic metal industry that grew more in the fourth quarter at 18.8 percent y-o-y, a significant increase from 10.9 percent y-o-y in the third quarter. Further, the tobacco and electronics industries also showed notable growth in this quarter.11 Meanwhile, Indonesia’s PMI reached 52.2 in December 2023—the highest in this quarter, an increase from 51.7 in November. Overall, Indonesia’s PMI has been in the expansionary zone for the past 28 months and this is attributed to a large increase in new domestic and global orders.12
Labor: Indonesia’s unemployment rate is expected to increase to 5.5 percent in the fourth quarter 2023 from 5.1 percent in the third quarter 2023.13
Inflation: Inflation continued to trend downward to 2.7 percent in the fourth quarter compared to 2.9 percent in the third quarter and was within the central bank’s target range of 2.0 to 4.0 percent. Transport inflation contributed to this, as it stabilized food, housing, water, electricity, and household fuel prices that softened from November to December 2023.
Financial markets
Currency: The Indonesian rupiah appreciated by 1.0 percent and 0.6 percent month-on-month (m-o-m) against the dollar in November and December 2023 respectively, after experiencing the strongest decline in a year in October 2023 (a 2.5 percent m-o-m depreciation).14 The central bank, Bank Indonesia, raised interest rates unexpectedly in October to arrest the rupiah’s decline amid monetary tightening in the United States and rising geopolitical risks.
Policy rate: Indonesia’s policy rate remained unchanged at 6 percent in January 2024, following the latest revision in October 2023. The rupiah pared back some of its losses in November and December 2023 and Bank Indonesia for now remains confident that it can hold onto the same policy rate and achieve its 1.5 to 3.5 percent inflation target in 2024..15
Capital flows: Foreign direct investment (FDI) inflows slowed sharply to 5.3 percent y-o-y in the fourth quarter 2023 versus 16.2 percent growth in the third quarter.16 It marked the softest growth since the third quarter 2020, with investors adopting a wait and see approach ahead of the general elections in February 2024. The biggest FDI recipients were the basic metal and electronics industries, which received $3.1 billion, followed by transport, storage, communication, and mining. China, Malaysia, and Singapore were Indonesia’s biggest sources of FDI in this quarter.17
Malaysia
Malaysia’s economy expanded at a slower pace of 3.0 percent y-o-y in the fourth quarter 2023, after attaining 3.29 percent growth y-o-y in the third quarter. This brings Malaysia’s overall 2023 GDP growth to 3.7 percent, following a breakout year in 2022 when the economy grew by 8.7 percent. The sustained downturn in Malaysia’s external sector performance took its toll on the economy (Exhibit 4). On the domestic front, consumption saw steady growth supported by strong labor market and prices moderating. The ringgit, meanwhile, continues its decline and is close its lowest levels since the Asian financial crisis in January 1998.
Macroeconomic outlook
GDP: The GDP in the fourth quarter 2023 rose 3.0 percent, slower than the 3.3 percent recorded in the previous quarter. For the full year, GDP growth was a modest 3.7 percent, lower than the advanced estimates of 3.8 percent and significantly lower compared to the 8.7 percent growth in 2022. Investment growth slowed from 4.5 percent in the third quarter to 4.0 percent in the fourth. In terms of supply, the economy’s growth was propelled by expansion in the services, agriculture, and construction sectors at 4.2 percent, 1.9 percent, and 3.6 percent, respectively. A bright spot was the mining sector, which rebounded by 3.8 percent in the fourth quarter from a contraction of 0.1 percent in the previous quarter.18
Private consumption: Private consumption expanded by 4.2 percent y-o-y in the fourth quarter 2023, moderating from 4.6 percent in the preceding three-month period. Easing cost pressures and an improvement in the labor market allowed households to continue to spend to support consumption.19
Trade: In the fourth quarter 2023, exports contracted by 6.9 percent y-o-y, after having increased 2.2 percent y-o-y in the previous quarter. Imports increased by 1.3 percent y-o-y, compared to exports of 0.8 percent y-o-y in the previous quarter. Meanwhile, the trade surplus shrank by 46 percent y-o-y due to prolonged weakness in external demand amid strong imports.20
Industrial activity: Industrial production in the fourth quarter 2023 is expected to improve notably at 3.6 percent y-o-y growth from a –0.05 percent y-o-y contraction in the preceding quarter.21 Manufacturing output declined by 1.4 percent in December 2023, having remained soft for most of the second half of 2023. December’s weak manufacturing output stemmed from export oriented industries, such as petroleum, chemicals, rubber, plastic, electrical equipment, and household electronics. PMI remained in the contractionary zone, although an improvement of 47.9 to 49.0 from December 2023 to January 2024 may be a sign that the weakness in the manufacturing sector may be bottoming out.22
Labor: In the fourth quarter 2023, the unemployment rate declined to the prepandemic level of 3.3 percent, while the labor force participation rate was at a historic high in 2023 at 70.2 percent.23 Increase in foreign investments, higher infrastructure activities, and the steady recovery seen in the tourism sector have helped to support the labor market, with more hirings seen in the services sector, particularly in information and communications technology, food and beverage, and transport and storage activities.24
Inflation: Amid lower cost factors, inflation decreased from 2.0 percent y-o-y in the third quarter 2023 to 1.6 percent y-o-y in the fourth quarter. Moderation in fresh food inflation (at 0.5 percent in the fourth quarter 2023 and 1.9 percent in the third quarter) and core inflation (2.0 percent in the fourth quarter and 2.5 percent in the third) contributed to this downward trend.25 Lower core inflation was largely driven by services subsegments easing, including food away from home and repair and maintenance of personal transport. For the full year 2023, inflation declined to 2.5 percent compared to 3.3 percent in the previous year.26
Financial markets
Currency: The ringgit extended its decline, and since the start of 2024 has depreciated by about 4 percent against the dollar. The ringgit is close to its lowest levels since the Asian financial crisis in January 1998, prompting the central bank to stress that the currency's weakness is not reflective of Malaysia’s economic prospects and has been influenced by external factors such as US rate hikes, geopolitical tensions, and China’s uncertain economy.27
Policy rate: The central bank held its benchmark overnight policy rate steady at 3 percent in January 2024, citing improving domestic demand and labor market conditions.28
Capital flows: FDI inflows rose by US $2.1 billion to $3.6 billion (9.9 billion ringgit to 17.1 ringgit) at the end of the fourth quarter 2023, with the services sector being the largest beneficiary, followed by manufacturing and mining and quarrying. The top three countries for FDIs were Hong Kong, Singapore, and the United States.29
The Philippines
The Philippine economy grew at 5.6 percent in fourth quarter 2023 and ended the year at 5.6 percent overall, lower than the 7.6 percent growth attained in 2022 and missing the government target of between 6.0 to 7.0 percent. When compared to regional peers, however, the Philippines’ growth in 2023 still outpaced the likes of China (5.2 percent), Malaysia (3.8 percent), and Vietnam (5.0 percent).30
The fourth quarter saw the unemployment rate decline to 3.1 percent, a record low since 2005. This, in turn, supported consumption, which improved from the previous quarter. Inflation continued to moderate and is at a near two-year low. Manufacturing output improved, while trade recorded a softer decline, given continued external trade weakness (Exhibit 5).31
Macroeconomic outlook
GDP: GDP grew at 5.6 percent y-o-y in the fourth quarter 2023, lower than the 5.9 percent growth in the previous quarter and weaker than the 7.1 percent growth in the same period in 2022.32 Annual GDP for 2023 was 5.6 percent, below 7.6 percent achieved in 2022 and missing the government target of 6.0 to 7.0 percent. Lower public spending in the fourth quarter impacted fourth quarter numbers, while soaring inflation (necessitating aggressive rate hikes) and persistent supply chain bottlenecks would have contributed to a weaker performance in 2023 overall.33
Private consumption: Household consumption picked up pace and saw a 5.3 percent growth in the fourth quarter 2023, from 5.0 percent in the third quarter.34 The healthy job market and consistent inflows of remittances, among others, supported demand growth for goods and services and led to a higher willingness by households to spend on nonessential items, including restaurants and hotels.35
Trade: The Philippines recorded a contraction in exports by 2.6 percent y-o-y in the fourth quarter 2023, the steepest decline in two years (compared to 2.6 percent growth in the previous quarter).36 This was driven the exports of goods, which contracted by 11.6 percent y-o-y with semiconductors, electronics, office equipment, and instrumentation contributing the most to the decline in growth. Imports rebounded, growing at 2.9 percent y-o-y from a contraction of 1.1 percent y-o-y in the previous quarter, which was primarily driven by the travel, business services, and transport sectors.37
Industrial activity: Manufacturing production in the Philippines increased by 2.0 percent y-o-y in December, the fastest pace in three months since 9.8 percent in September and picking up pace from 1.8 percent in November 2023. Manufacturing PMI fell to 50.9 in January 2024 from 51.5 in December 2023, slowing for the second straight month, although it still remains in the expansionary zone (above 50) as manufactures maintain a solid level of optimism while anticipating greater sales in the upcoming months.38
Labor: The unemployment rate eased to a record low of 3.1 percent in December 2023, with more jobs made available during the year-end holiday season. This is the lowest recorded since 2005 when a new methodology for measuring unemployment was introduced, beating the previous record low of 3.6 percent in November 2023.
Inflation: Inflation is at a near two-year low, having eased to 2.8 percent in January 2024. This is well within the government’s target range of 2.0 to 4.0 percent and the third straight month that inflation has eased, having recorded 3.9 percent in December 2023.39 Prices moderated in ten out of 12 subsectors—including food and transport, negating the increase in the price of rice, which continues to face production challenges posed by the ongoing El Niño weather phenomenon.
Financial markets
Currency: The Philippine peso appreciated by 0.6 percent m-o-m against the dollar in December, compared to an appreciation of 1.6 percent m-o-m in November 2023.40
Policy rate: The Philippine central bank kept its benchmark interest rate steady at 6.5 percent for a second straight meeting in December even as price pressures eased. It emphasized that policy rates would have to stay "sufficiently tight" until a sustained downward trend in inflation becomes evident and inflation is brought back to within the target range. Despite inflation moderating since November 2023, the Philippines recorded full year average inflation of 6.2 percent, which is outside its 2.0 to 4.0 percent target range.41
Capital inflows: In the fourth quarter 2023, FDI inflows to the Philippines swelled to $7 billion, a 127.2 percent rise from the same period a year before.42 This investment surge is projected to create over 28,000 jobs and indicates a bright economic outlook for the nation. The Netherlands was the largest investor, accounting for approximately 88 percent of the total foreign commitments, followed by Japan and Singapore. The primary beneficiaries of this injection were the electricity, gas, steam, and air conditioning supply industries, which accounted for 85.1 percent of the total foreign commitments.43
Southeast Asia’s economies: Softening but still strong
Singapore
Singapore’s GDP growth in the fourth quarter of 2023 was at 2.2 percent, slower than the advance estimates of 2.8 percent by the Ministry of Trade and Industry (MTI).44 The economy grew by 1.1 percent in 2023, marginally less than the government’s estimate of 1.2 percent and significantly lower than the 3.8 percent growth recorded in 2022.
Stronger services performance was one of the key contributors to the fourth quarter economic performance, with the finance and insurance, and information and communication sectors posting the strongest growth. Exports grew by only 0.2 percent in the fourth quarter due to slower performance in key exports sectors, such as oil and non-oil, amid softer global demand and continued geopolitical challenges (Exhibit 6). In the services sector, international tourism saw promising recovery with tourist arrivals having doubled to 13.6 million in 2023 from a year before.45
Macroeconomic outlook
GDP: Singapore’s economy grew at 2.2 percent y-o-y in the fourth quarter 2023, slower than the advanced estimates from the Ministry of Trade and Industry at 2.8 percent and more than the 1.0 percent y-o-y growth in the third quarter 2023.46 Expansion in the construction and manufacturing sectors were key growth contributors, with the latter expanding by 1.4 percent y-o-y in the fourth quarter of 2023, a turnaround from the 4.9 percent contraction in the previous quarter.47 The manufacturing sector expanded in output in the electronics, transport, engineering, and chemical clusters. Growth in the construction sector picked up to 5.2 percent y-o-y from 3.7 percent in the third quarter, as both public and private sector construction output increased. Meanwhile, gross fixed capital formation (GFCF) rose by 3.0 percent y-o-y in the fourth quarter, a reversal from the 1.9 percent contraction in the preceding quarter. GFCF rose during the quarter on account of increases in public GFCF (10.6 percent) and private GFCF (1.5 percent).48
Consumption: In the fourth quarter 2023, consumption expenditure grew by 2.5 percent y-o-y, the same rate at which it grew in the third quarter. Total consumption expenditure for 2023 increased by 3.5 percent, down from 5.5 percent growth in 2022. Both private and public consumption fueled this growth, with the former increasing by 3.8 percent as there was more consumption of goods and services, and recreation and culture. Public consumption grew by 2.6 percent, from having contracted by 1.9 percent in 2022.49
Trade: Total trade contracted by 2.1 percent y-o-y in the fourth quarter 2023 after contracting by 16.5 percent in the previous quarter as exports recovered marginally and imports saw a decline. Exports grew modestly at 0.2 percent y-o-y (after a 15.6 percent decline in the previous quarter), mainly due to poor performance in the core exports sector such as oil and non-oil, which shrunk 2.1 percent and 1.4 percent y-o-y, respectively. The pharmaceuticals sector was, however, a bright spot in December 2023, with exports growing 56.9 percent. Meanwhile, imports declined by 4.7 percent y-o-y in the fourth quarter (following a 17.4 percent decrease in the previous quarter).50
Industrial activity: Industrial production improved significantly, having contracted 4.7 percent y-o-y in the third quarter 2023 to achieve 3.2 percent y-o-y growth in the fourth quarter. Manufacturing output rose by 9.0 percent quarter-on-quarter (q-o-q) in the fourth quarter following 0.3 percent q-o-q growth in the third quarter. The construction sector remained a positive spark among the goods-producing industries, with output up by 9.1 percent y-o-y in the fourth quarter, after a rise of 6.2 percent y-o-y in the previous quarter.51 PMI increased marginally from 50.3 in November to 50.5 in December, the fourth consecutive improvement, reflecting the manufacturing sector’s recovery.52
Labor: Singapore’s unemployment rate remained unchanged in the fourth quarter 2023 at 2 percent, similar to the previous quarter. Retrenchments fell from 4,110 in the third quarter to 3,200 in the fourth quarter, despite increase in retrenchments in electronics manufacturing.53
Inflation: Consumer price index (CPI) inflation rose by 4.0 percent y-o-y in the fourth quarter 2023, moderating from the 4.1 percent increase in the previous quarter. For 2023 as a whole, CPI inflation came in at 4.8 percent, lower than the 6.1 percent recorded in 2022. Transport, food, recreation, and healthcare were key categories that contributed positively to CPI inflation in 2023.54
Financial markets
Currency: The Singapore dollar depreciated by 1.5 percent m-o-m against the dollar in December 2023, similar to the m-o-m depreciation in November.55
Policy rate: The central bank shifted from a semi-annual review of its monetary policy to a quarterly schedule of policy statements starting in 2024. In its first quarterly meeting for the year in January 2024, it kept the policy rate unchanged and has maintained its exchange rate policy band known as the Singapore dollar nominal effective exchange rate, or S$NEER.56 Analysts predict that the central bank could keep its policy rate unchanged in the next quarter, given that inflation could remain elevated in the earlier part of the year.57
Capital inflows: FDI inflows are estimated to increase to US $34 billion in the fourth quarter 2023 from US $22.7 billion in the third quarter, while foreign exchange (forex) reserves increased by US $19 billion, reaching US $342 billion in the fourth quarter from US $323 billion in the third quarter.58
Thailand
Thailand’s economy expanded at a modest pace of 1.7 percent y-o-y, slightly higher than the 1.4 percent growth recorded in the previous quarter. For the full year 2023, the economy expanded by 1.9 percent, decelerating from a 2.5 percent growth in 2022. Strong consumption and exports performance supported GDP growth in the fourth quarter. Exports notably rebounded during the quarter, particularly in the telecommunication equipment sector, while industrial activity remained muted (Exhibit 7). Inflation is at its lowest in nearly three years in January 2024.59
Macroeconomic outlook
GDP: Thailand’s economy grew by 1.7 percent y-o-y in the fourth quarter 2023 from a 1.4 percent y-o-y growth in the third quarter. For the full year 2023, GDP increased by 1.9 percent, decelerating from 2.5 percent in 2022. However, on a seasonally adjusted q-o-q basis, it contracted by 0.6 percent from an increase of 0.6 percent q-o-q in the third quarter. The fourth quarter growth was mainly driven by an increase in exports of goods and services, and private consumption expenditure. On the other hand, government expenditure contracted as a result of a reduction of purchases from enterprises and abroad, and healthcare spending related to the COVID-19 pandemic. In addition, total fixed investment also decreased, mainly due to a 20.1 percent decrease in public investment for the third consecutive quarter, continuing from a 3.4 percent decline in the previous quarter due to the delay in 2024’s financial year budgetary process.60
Private consumption: Household spending was a key contributor to growth in the fourth quarter as it grew by 7.4 percent y-o-y, albeit at a slower pace than the 7.9 percent expansion in the previous quarter. Most expenditure categories grew; these were supported by strong consumer confidence which has reached its highest level in 16 quarters, along with continued improvement in the labor market.
Trade: Exports rebounded in the fourth quarter to 4.9 percent y-o-y from a 0.2 percent y-o-y growth in the third quarter. This was on the back of higher exports of telecommunication equipment, parts of electrical appliances, metal products, vehicle parts, and petroleum products.
In line with the rebound in exports, imports expanded for the first time in three quarters, with a 6.1 percent increase compared to a 10.7 percent contraction in the preceding quarter. Consequently, the trade balance recorded a surplus of $3.5 billion in comparison to a surplus of $5.4 billion in the previous quarter. For the full year 2023, exports declined by 1.7 percent, imports declined by 3.1 percent, and the trade balance recorded a surplus of $17 billion dollars.61
Industrial activity: Industrial production contracted for 15 consecutive months and in the fourth quarter 2023 declined by 4.7 percent y-o-y, following a 5.5 percent contraction the previous quarter. In particular, the manufacturing sector declined by 2.4 percent, continuing from a 4.4 percent contraction in the previous quarter—this is the fifth consecutive quarter in which it has declined. This was especially true for export-oriented industries following softening demand from major economies. The PMI remained in the contractionary zone even though it increased from 45.1 in December 2023 to 46.7 in January 2024 as new orders fell for the seventh straight month.62
Labor: In the fourth quarter 2023, unemployment rate stood at 0.81 percent, the lowest ever recorded in the past 32 quarters. An uptick in tourism activities resulted in new employment in the sector, resulting in lower unemployment in the fourth quarter.63
Inflation: Inflation continued its downward trend, having decelerated for four consecutive months since October 2023 and is at its lowest in nearly three years in January 2024. January’s inflation decreased by 1.11 percent y-o-y, having declined by 0.83 percent, 0.44 percent, and 0.31 percent in December, November, and October 2023, respectively. Lower food prices, the effect of energy subsidies, and a high base effect from a year before drove January’s decline.64
Financial markets
Currency: The Thai baht was Asia’s top performing currency in fourth quarter 2023 but has since become the second worst in January 2024 having depreciated 4 percent m-o-m against the dollar. The latest economic release which highlights Thailand’s weakening economy, coupled with a firm dollar given the delay in US interest rate cuts, could continue to put the baht under short-term pressure.65
Policy rate: In its latest policy meeting in February 2024, the Bank of Thailand (BOT) kept its policy rate of 2.5 percent unchanged, although it stands “ready to adjust rates if the economy and inflation change significantly.” The decision to keep its rate unchanged was split 5-2, with two members favoring a quarter point cut. The rate remains Thailand’s highest in a decade, with the next policy meeting formally scheduled for April 2023.66
Capital inflows: FDI inflows are expected to marginally increase to $1.6 billion in the fourth quarter 2023 compared to $1.4 billion in the previous quarter.67
Vietnam
Vietnam’s economy picked up pace in the fourth quarter 2023 as GDP growth accelerated to 6.7 percent, emerging as the country’s best quarterly performance since 2019. Despite the bright quarter, overall GDP growth for 2023 stands at 5.0 percent y-o-y, still below the government’s target of 6.5 percent and lower than 2022’s 8.0 percent growth. Weak global demand and the stalling of public investment amid an intensive antigraft crackdown took its toll on the economy in 2023.
The fourth quarter growth was driven by a strong recovery in exports and private consumption (Exhibit 8). Industrial production grew at a faster rate, with the PMI entering the expansionary zone in January 2024, the first time since August 2023. FDI saw larger inflows in December 2023, rising by 32.1 percent y-o-y.68
Macroeconomic outlook
GDP: Vietnam’s economy accelerated to 6.7 percent y-o-y in the fourth quarter 2023 from 5.5 percent y-o-y growth in the third quarter and 4.25 percent in the second quarter. The services sector grew by 6.8 percent and was the main contributor to GDP expansion in the fourth quarter, following the high growth momentum seen in the commercial and tourism sectors. International tourism totaled 12.6 million visitor arrivals in 2023, exceeding the national target of 8.0 million visitor arrivals, though still about 70 percent of prepandemic levels.69
Private consumption: Final consumption expenditure rose an estimated 4.86 percent in the fourth quarter 2023 over the same period in 2022 and contributed 53.18 percent to the overall growth of the economy.70
Trade: In the fourth quarter, the export and import of goods and services grew by 8.68 percent and 8.76 percent, respectively. Exports expanded for four straight months since September 2023, turning around the slowdown in the first quarter when exports contracted by 8.5 percent. Computers and smartphones—which account for one-third of total exports—recovered significantly, growing by 51.5 percent in December 2023. The recovery in computer and smartphone exports bodes well for Vietnam’s export sector in 2024, following a 4.4 percent y-o-y contraction in total exports for 2023. Vietnam’s full year 2023 imports, meanwhile, contracted by 8.9 percent, and overall trade surplus doubled to $28 billion from $12.1 billion in 2022.71
Industrial activity: Industrial production continued to improve in the fourth quarter, achieving 7.8 percent y-o-y growth after attaining 2.8 percent y-o-y growth in the third quarter.72 The continued improvement in industrial activities also saw Vietnam’s PMI climb to 50.3 in January 2024, after ending 2023 at 48.9—this serves as the first time PMI has entered the expansionary zone since August 2023.73
Labor: Vietnam’s unemployment rate declined to 2.26 percent in the fourth quarter 2023 from 2.3 percent in the third quarter, recording an average of 2.28 percent for the whole of 2023. The better performance in the fourth quarter is attributed to an increase in production and business activities due to Tết holiday demands. Although the employed population has increased, labor quality concerns persist given a large portion of the workforce that is engaged in informal sectors. The fourth quarter also saw lower retrenchments of 85,500 people, 32,100 fewer compared to the same period in 2022 and 32,900 fewer than third quarter 2023.74
Prices: Inflation has remained above the 3 percent mark since September 2023. Vietnam’s inflation grew 3.37 percent m-o-m in January 2024, albeit lower than the 3.58 and 3.45 percent recorded in December and November 2023, respectively. Average inflation for 2023 stands at 3.25 percent, below the government’s inflation cap of 4.5 percent. On a monthly basis, though, inflation in January 2024 was 0.31 percent higher than December 2023. Prices for medicine and healthcare services, housing and construction materials, and transportation services grew the most in January 2024.75
Financial markets
Currency: The dong appreciated marginally at 0.3 percent m-o-m against the dollar in December 2023, compared to 0.4 percent m-o-m in November.76
Policy rate: The central bank kept policy rates unchanged in November and December 2023, after raising them by 100 basis points in October 2023 to counter inflation, protect its currency, and ensure the stability of its banking system.77 The central bank has recently signaled that it will not consider increasing policy interest rates further in 2024.78
Capital inflows: As of December 2023, Vietnam had attracted $36.6 billion of FDI in the whole of the year, a rise of 32.1 percent y-o-y. Of the total FDI, 64.2 percent went to process manufacturing, with real estate (12.8 percent), power generation and distribution (6.5 percent), and banking (4.3 percent) rounding off the top FDI sector beneficiaries. Hong Kong, Japan, and Singapore represent Vietnam’s top-three FDI contributors.79
In the spotlight
Cautiously optimistic for 2024
The near-term economic outlook for Southeast Asia in 2024 remains positive, with all countries forecasting improved growth in 2024, supported by the continued expansion of domestic demand in a number of large Southeast Asian economies. A gradual upturn in merchandise exports is expected during 2024, after a significant downturn in exports of goods in many Asian industrial nations during 2023, due to weakness in key consumer markets in Mainland China and Western Europe. FDI inflows are also expected to remain strong as multinationals continue to diversify their manufacturing supply chains and look to Southeast Asian industrialized nations. A number of Southeast Asian central banks are also expected to commence easing monetary policy during 2024, which will help to provide some stimulus for economic growth.
Despite the positive forces, the external environment is still fraught with challenges and geopolitical uncertainties that could continue to weigh down global economies. These include geopolitical tension between China and the United States, recessionary risk in the United States and Europe, and an uncertain economic prospect in China.
Indonesia
Indonesia’s economy grew by 5.04 percent y-o-y in the fourth quarter of 2023, bringing full-year growth to 5.05 percent. Looking ahead, Indonesia is projecting 5.2 percent growth for 2024, where domestic consumption will be the backbone of economic growth.80 The country’s recent elections this year could lead to higher private and government spending. Ongoing spending on infrastructure and national strategic projects (PSN) could also provide upside support. Indonesia’s external economy will, however, be challenged, given continued weakness in commodity prices, the global economic slowdown, and geopolitical tensions.
Rupiah stability will remain a key monetary policy objective for the Bank of Indonesia throughout 2024. Inflation is projected to ease and remain within the central bank’s target range of 1.5‒3.5 percent.
Malaysia
2023’s weak external demand tested Malaysia. Despite that, its GDP grew a modest 3.7 percent and for 2024, Malaysia projects a stronger GDP growth of between 4.0 and 5.0 percent.
Private consumption, which contributes to 60 percent of GDP, will be one of critical levers of the economy in 2024. Here, household spending is expected to be supported by continued high employment and wage growth. Investment activities need to be sustained and could be underpinned by further progress of multiyear projects, by both the private and public sectors, as well as the implementation of catalytic initiatives under the MADANI economic framework and strategic national master plans. Improvement in tourist arrivals and spending are expected to continue to boost service sectors.8182
Downside risks remain, mainly driven by the external factors such as external demand continuing to be weak and geopolitical complexities. Despite that, the bottoming of the electronics export downcycle, likely in the second half of 2024, could help mitigate downside risks and support export growth.
The Philippines
The view for the Philippines’s economic prospects appears to be resilient. Despite 2023’s growth of 5.6 percent being lower than the 7.6 percent recorded in 2022 and below official target of 6.0 to 7.0 percent, the Philippines still emerged as one of Asia’s best-performing economies.
For 2024, the Philippines is forecasting growth of between 6.5 to 7.5 percent. While the target may appear stretched relative to 2023’s performance, if the Philippines’ low inflationary environment (coupled with record low unemployment rate) is sustained, it could, in turn, boost private consumption—an important driver of GDP growth as it accounts for 75 percent of the Philippine economy. Government-led initiatives, including the implementation of structural reforms, robust public spending, accommodative fiscal policies, and foreign investment attraction, could constitute critical levers to support growth.
Headwinds could drag the Philippines economy. Deteriorating external demand from major trading partners such as China and the United States—which together accounts for about a third of total exports—does not bode well for the Philippines’ external sector. Damaging climate change effects, such as a prolonged El Niño dry spell, may impact food supply and prices, while geopolitical conflicts could disrupt energy supply and prices.83
Singapore
There is more optimism for Singapore's economic outlook for 2024 following its recent momentum, although prospects would also depend on the external environment. Singapore is forecasting growth of between 1 to 3 percent in 2024.84 Despite GDP having grown less than expected, the manufacturing sector is projected to resurge, driven by global manufacturing demand in sectors such as electronics and transport engineering. Robust tourism arrivals—especially from China—and the normalizing of domestic-oriented sectors toward prepandemic levels would also support growth. Lingering global uncertainties could, however, derail growth—geopolitical conflicts and prevailing tensions, a recessionary risk in major economies such as the United States exists, and risks of inflationary shocks in energy and food prices remain.85
Thailand
Thailand’s economy grew at a slower pace of 1.9 percent in 2023 than the 2.5 percent recorded in 2022. This prompted a revision of national growth projections for 2024 to 2.8 percent, from 3.2 percent previously forecasted, though an improvement in exports and the services sector, including tourism, is expected. The government has plans to roll out fiscal stimulus measures such as a digital wallet program to help boost household consumption, while private investment and government consumption should help drive further growth.86
Downside risks remain given uncertain demand from major trading partners, including Mainland China and Europe. Household debt, which has reached a high of 90.9 percent of GDP or 16.2 trillion baht, might need to be carefully managed.
Vietnam
Vietnam navigated a challenging 2023, attaining GDP growth of 5 percent, significantly lower than the 8 percent rebound recorded in 2022. Looking forward, the National Assembly has set a growth target of between 6.0 and 6.5 percent for 2024.
Recovering exports and sustained foreign investment inflows and consumption are expected to be key drivers to Vietnam’s growth in 2024. The recovery seen in the global semiconductor sector and increase in the demand for computers and smartphones bodes well for Vietnam’s production, bringing optimism in the exports sector. As firms continue to diversify their supply chains and advance their China+1 strategy, Vietnam can build on its growth momentum in foreign direct investments, which significantly improved by 32.1 percent in 2023. Further recovery in domestic consumption following the government’s stimulus policies and the uptick in international tourism would support growth.
Given the openness of Vietnam’s economy, global and external challenges could still pose issues.87 Vietnam's prudent monetary policy, coupled with price controls on essential commodities, would be critical to keep inflation in check and help to buffer from potential upside risk in energy and food prices.
The majority of countries in Southeast Asia recorded accelerated growth in the fourth quarter 2023, driven by an increase in growth in the services sectors (particularly tourism), strong domestic demand, and improved growth in manufacturing sectors. This upward economic trend allows for cautious optimism for the region’s growth in the year ahead.
