Online spending will rise about 15% this year to US$263 billion in the region, research from Google, Temasek Holdings Pte and Bain & Co showed, slowing from 17% a year earlier and reaching its lowest rate since at least 2017.
The local digital economy is also set to record its lowest level of private funding this year, the report showed.
Consumers in the region of more than 650 million people are curbing spending to cope with elevated inflation and interest rates.
That’s raising questions about the billions of dollars in investments that tech companies have made in countries from Indonesia and Singapore to Thailand and Vietnam, looking for new Asian growth markets beyond larger economies such as China and Japan.
Meanwhile, competition is intensifying. Global giants like Amazon.com Inc and Alibaba Group Holding Ltd, as well as regional players Grab Holdings Ltd, Sea Ltd, and GoTo Group, are vying for a bigger share of markets from online retailing to food delivery and ride-hailing.
The region’s largest tech companies have been under immense pressure to show investors that they can turn a profit — resorting to brutal cost cuts including slashing thousands of jobs and exiting businesses as user growth cools and competition weighs on margins.
The region’s internet economy will deliver US$11 billion of profits this year on the back of US$89 billion in total revenue, the report showed, mainly buoyed by the online media industry.
Next year, SEA’s online spending is set to reach or surpass the US$295 billion the researchers have previously projected, said Florian Hoppe, a partner at Bain.
That suggests growth at a similar pace as in 2024.
“Robust macroeconomic conditions in SEA continue to underpin the digital economy.
“SEA’s digital economy will be shaped by increasing user sophistication, the growing importance of digital safety and security, and the need to unlock greater business value from AI,” the researchers wrote in the annual collaborative report.
Private funding of companies in SEA has dropped to its lowest level on record, the report showed, slowing sharply from pandemic highs as investors become more choosy and capital becomes more expensive.
The number of deals involving tech companies in the region shrank to 306 in the first half of 2024 from 564 a year earlier, according to the report.
Investor funding is shifting to areas including software and sustainability technology.
Yet, SEA is fast emerging as a bright spot for investments in data centres.
In the first half of the year, tech giants committed about US$30 billion to build AI-ready data centres, the report showed.
The CEOs of Apple Inc, Microsoft Corp, and Nvidia Corp are among the industry chieftains who’ve swung through the region in past months, committing billions of dollars in investment and holding forth with heads of state from Indonesia to Malaysia.