Southeast Asia’s economies exhibited mixed performance in the third quarter of 2023. Malaysia, the Philippines, Singapore, and Vietnam saw GDP growth increase in this period, while Indonesia’s and Thailand were slower (Exhibit 1). Muted external conditions and demand for the region’s manufactured and commodity exports are the main reasons behind the slower growth in this quarter. On the other hand, robust domestic demand, government spending, and a continued recovery of the services sector—particularly tourism—have contributed to better job and income prospects, which in turn have supported growth, particularly in the Philippines and Vietnam.
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’s 2023 third-quarter GDP growth decreased to its lowest in two years as it fell below 5 percent for the first time in seven quarters. This was mainly driven by a slowdown in exports and household consumption.
Exports have been declining since 2022 given Indonesia’s high dependence on commodity exports where prices have normalized, compared to 2021 (Exhibit 3). Despite a decline in exports, the third quarter has seen reduced inflation and increased government spending in the run-up to the presidential elections in early 2024.
Macroeconomic outlook
GDP: Indonesia recorded 4.9 percent y-o-y economic growth in the third quarter 2023, marginally down from the 5.2 percent growth observed in the preceding quarter. Fixed investment rose to 5.8 percent y-o-y in the third quarter from 4.6 percent in the second quarter—a silver lining in the GDP breakdown this quarter.
Private consumption: Private consumption decelerated marginally to 5.1 percent in the third quarter from 5.2 percent in the previous quarter. A rise in domestic travel and a healthy number of foreign tourists visiting the country (approaching pre-pandemic levels) helped drive consumption growth. Retail and domestic sales of motorbikes also contributed to consumption expenditure in this quarter.
Trade: In the third quarter 2023, exports declined by –4.6 percent y-o-y, from the 2.9 percent y-on-y decrease in the preceding quarter. This is the biggest fall since the end of 2020 owing to a drop in demand for commodities including coal and palm oil. Concurrently, imports experienced a decline, dropping to an 11 percent y-o-y decrease from a 5 percent decrease in the second quarter.
Industrial activity: Industrial production in the third quarter 2023 held steady at 1 percent y-o-y, consistent with the rate observed in the second quarter. PMI decreased to 51.5 in October from 52.3 in September 2023. A slowdown in production growth in October contributed to the decline in the headline PMI reading. While still solid, the rate at which output expanded was the softest in four months. This was attributed primarily to slower sales growth in October, with anecdotal evidence suggesting that some manufacturers experienced softer demand conditions at the start of the final quarter.
Labor: Indonesia’s unemployment rate is expected to decline to 5.0 percent in the third quarter 2023 from 5.6 percent in the second quarter 2023.
Inflation: The downward trend in inflation is apparent at the quarterly level where it slowed from 3.9 percent in the second quarter 2023 to 2.9 percent in the third quarter. However, the October data show a slight uptick at 2.6 percent month-on-month (m-o-m) from 2.3 percent m-o-m in September. This can be attributed to the El Niño weather phenomenon which has caused a drought in the country, triggering an increase in food prices, especially in the price of rice that rose 18 percent y-o-y in October to its highest in five years.
Financial markets
Currency: The Indonesian rupiah depreciated by 2.5 percent m-o-m against the US dollar in October, the strongest decline in a year (versus 0.8 percent in September). The steep decline in October prompted Bank Indonesia to raise interest rates unexpectedly. The decision came as the rupiah faced renewed pressure, hitting its lowest level since 2020, as monetary tightening in advanced economies and tensions in the Middle East caused risk-averse investors to choose safer assets.
Policy rate: Bank Indonesia unexpectedly raised interest rates in October to arrest the rupiah’s decline amid the United States’ monetary tightening and rising geopolitical risks, with economists seeing possible further hikes should the currency’s weakness persist. The policy rate was hiked by 25 basis points, reaching 6 percent. This has been the second hike in 2023 and the seventh since the start of the tightening cycle in 2022. According to Bank Indonesia, this increase has been implemented to further help stabilize the rupiah against the impact of increasing global uncertainty and as a preemptive step to mitigate its impact on inflation through imported goods. The currency pared back some of its losses after the hike.
Capital flows: FDI inflows jumped by 16.2 percent y-o-y to $17.0 billion in the third quarter 2023 versus 14.2 percent growth in the second quarter. The biggest FDI recipient was the base metals industry, which received $3.3 billion, followed by the chemical and pharmaceutical industry and mining. China, Hong Kong, and Singapore were Indonesia’s biggest sources of FDI.
Malaysia’s economy grew faster than anticipated in the third quarter 2023, with the central bank expecting buoyant domestic demand to continue offsetting a slowdown in exports. GDP grew at 3.3 percent in the third quarter, recovering from a near two-year low of 2.9 percent in the second quarter. The strong performance was due to growth in the services, construction, and agricultural sectors. Domestic demand remained the key driver of growth, mainly due to increased private consumption and investment (Exhibit 4).
Macroeconomic outlook
GDP: The GDP in the third quarter 2023 rose 3.3 percent, bringing growth in the nine months of the year to 3.9 percent. This is consistent with the government’s growth forecast of approximately 4 percent for 2023. Domestic demand anchored the Malaysian economy in the third quarter, while global conditions remained slower, yet volatile. Domestic demand soared by 4.8 percent in the third quarter, with the resilient labor market and an improving tourism sector lending further support. In terms of supply, the economy’s growth was propelled by expansion in the services, agriculture, and construction sectors at 5.0 percent, 0.8 percent, and 7.2 percent, respectively.
Private consumption: Private consumption expanded by 4.6 percent y-o-y in the third quarter 2023, accelerating from 4.3 percent in the preceding three-month period. Private consumption is anticipated to remain robust in 2024, as Bank Negara Malaysia (the central bank) is expected to maintain the overnight policy rate at 3 percent throughout the year, keeping funding costs stable. Furthermore, improving export performance will stimulate investment and boost income in sectors associated with international trade.
Trade: Both exports and imports performed better in the third quarter 2023. Exports increased by 2.2 percent y-o-y from –19.0 percent y-o-y in the second quarter, while imports increased marginally at 0.8 percent y-o-y from –16.7 percent y-o-y in the previous quarter. Overall, trade surplus rose by 9.6 percent amid slower global demand, uncertainties in commodity prices, and a high base effect from 2022.
Industrial activity: Industrial production in the third quarter 2023 saw a notable improvement, recording a 1.9 percent y-o-y growth from a –0.2 percent y-o-y contraction in the preceding quarter. This growth was driven by a rebound in agriculture and moderation in construction. PMI remained in the contractionary zone and was unchanged at 46.8 in October. Manufacturers experienced a challenging business environment again at the start of the fourth quarter 2023 as demand conditions continued to wane. New orders moderated and production was scaled back.
Labor: The unemployment rate is expected to remain steady in the third quarter 2023 at 3.5 percent, similar to 3.4 percent in the second quarter.
Inflation: Amid lower cost factors, inflation decreased from 2.8 percent y-o-y in the second quarter 2023 to 2.0 percent y-o-y in the third quarter.
Financial markets
Currency: The ringgit depreciated by 1.4 percent m-o-m against the US dollar in October 2023 compared to the 1.4 percent decrease m-o-m in September. In October, it fell to its lowest level since the 1997–1998 Asian financial crisis, with the currency weighed by the US dollar’s rise and a widening rate differential with the United States.
Policy rate: Bank Negara Malaysia maintained its policy rate at 3 percent at its October 2023 meeting, despite a falling ringgit putting inflationary pressure on the economy.
Capital flows: FDI inflows increased sharply in third quarter 2023 to $4.1 billion, from $1.1 billion in the second quarter. Forex reserves increased by $2 billion, reaching $101 billion in the third quarter.
The Philippines was the fastest growing economy in Southeast Asia in the third quarter 2023, driven by an increase in government spending (Exhibit 5). This compensated for the slowdown in domestic consumption following higher levels of inflation.
GDP grew at 5.9 percent y-o-y in the third quarter versus 4.3 percent growth in the previous quarter. Public spending picked up by 6.7 percent in the third quarter after the government implemented its catch-up expenditure program, reversing the 7.1 percent contraction posted in the second quarter.
Macroeconomic outlook
GDP: Economic growth rebounded 5.9 percent y-o-y in the third quarter 2023 from 4.3 percent in the previous quarter. Public spending picked up by 6.7 percent from the 7.1 percent contraction in the previous quarter. Total investments declined by 1.6 percent, mainly due to drawdowns in inventories for a second consecutive quarter. Nevertheless, the construction sector posted a double-digit growth of 12.4 percent driven by public and household construction.
Private consumption: Household consumption posted slower growth, from 5.5 percent in the second quarter 2023 to 5.0 percent in the third quarter, the slowest growth in two years.This was driven by food inflation, which increased to 8.2 percent in the third quarter from 7.4 percent in the second quarter.
Trade: Exports’ growth slowed to 2.6 percent in the third quarter from 4.4 percent in the second quarter. This was driven by a decline in the exports of goods, which contracted by 2.6 percent. Imports of goods and services contracted by 1.3 percent, mainly due to the import of semiconductors (–1.1 ppt) and electronic data processing (–0.4 ppt) that contributed negatively to growth.
Industrial activity: Industrial production is estimated to have declined significantly from 5.5 percent y-o-y in second quarter 2023 to 1.0 percent y-o-y in the third quarter. However, PMI remained in the expansionary zone and rose from 50.6 in September to 52.4 in October, signaling an improvement in the manufacturing sector’s health in October. The latest upturn was supported by quicker expansions in factory orders and output. Rising workloads encouraged firms to raise their payroll numbers and purchasing activity. Additionally, inflationary pressures cooled during the latest survey period (September 2023), with both input costs and output charges increasing at rates slower than their respective historical averages.
Labor: The unemployment rate is expected to increase marginally to 4.7 percent in the third quarter 2023 from 4.3 percent in the second quarter.
Inflation: Inflation is on a downward trend as it eased from 8.4 percent in the first quarter 2023 to 6.2 percent in the second quarter and is at 5.4 percent in the third quarter. While it appears to be a favorable trend, Bangko Sentral ng Pilipinas (the central bank) has said it is ready to take further policy action to tame prices, if necessary.
Financial markets
Currency: The Philippines peso depreciated marginally by 0.02 percent m-o-m against the US dollar in October, compared to 1.0 percent m-o-m in September 2023.
Policy rate: In an unexpected move, the central bank raised its benchmark rate to a 16-year high of 6.5 percent on October 26, 2023. This was to signal that it was ready to follow through policy action if necessary to bring inflation back to its 2 to 4 percent target. It was still close to 5 percent in October. However, the central bank is unlikely to raise policy rates further in November as the governor indicated that, “given the decline in inflation, there’s no justification for higher interest rates.”
Capital inflows: FDI inflows are estimated to increase to $1.8 billion in the third quarter 2023 from $1.4 billion in the second quarter.
Singapore’s economy grew faster than initial estimates from the Ministry of Trade and Industry in the third quarter 2023, with GDP growth increasing. This was helped by a resurgence in tourism and service sector activity, despite risks to outlook from inflation and geopolitics.
The country has faced a severe slowdown in manufacturing activity and key exports, including a reduction in electronics manufacturing—a trend that has persisted for over a year (Exhibit 6). The near-term outlook is expected to remain constrained by slow demand in several important export markets for Singapore’s manufacturers, notably China and the European Union (EU). The service sector economy is expected to be more resilient, boosted by the continued recovery of international tourism travel in the Asia–Pacific region. Notably, Singapore’s international tourism arrivals have rebounded strongly in 2023.
Macroeconomic outlook
GDP: Singapore’s economic growth improved at 1.1 percent y-o-y in the third quarter 2023 compared to 0.5 percent y-o-y growth in the second quarter, beating the advanced estimates from the Ministry of Trade and Industry (at 0.7 percent). One of the key drivers of growth has been the improvements in the service sectors, with financial services expanding and accommodation and retail trade supported by buoyant tourist arrivals. Singapore’s international tourism has rebounded during 2023, with the total number of international visitor arrivals reaching 10.1 million in the first nine months of 2023, an increase of 171 percent compared to the same period in 2022. Strong tourism inflows have come from Asia—notably India, Indonesia, and Malaysia—and Australia. There has also been a significant upturn in visitors from Mainland China in recent months. The number of visitor arrivals is on track to meet the Singapore Tourism Board’s target of 12.0 million tourist visitors in 2023, about double those in 2022 (estimated at 6.3 million).
Private consumption: The retail trade sector expanded by 2.2 percent y-o-y, extending the 2.4 percent growth in the previous quarter. Both motor vehicle and non-motor vehicle sales volumes increased during the quarter. Tepid wage gains amid an uncertain economic environment could pose downside risks to consumers’ discretionary spending.
Trade: Both exports and imports contracted in September 2023. Exports have declined to –12.7 percent y-o-y (following –15.4 percent in the previous month). This marks the 12th straight month of decline for Singapore’s non-oil domestic exports. Both electronics and non-electronics exports fell. Meanwhile, imports also declined by –11.8 percent y-o-y in September, compared to –15.7 percent y-o-y in August. At the quarterly level, exports declined by 7.6 percent in the third quarter as compared to –8.4 percent in the previous quarter.
Industrial activity: Industrial production improved marginally from –7.6 percent y-o-y growth in the second quarter 2023 to –4.7 percent y-o-y growth in the third quarter. Manufacturing output rose by 0.2 percent quarter-on-quarter (q-o-q) in the third quarter compared with a contraction of 1.5 percent q-o-q in the second quarter and a decline of 4.5 percent q-o-q in the first quarter. However, on a year-over-year basis, manufacturing output continued to show a significant contraction of 5.0 percent y-o-y in the third quarter of 2023, after declining by 7.7 percent y-o-y in the second quarter. The construction sector remained a positive factor amongst the goods-producing industries, with output up by 6.0 percent y-o-y in the third quarter, after a rise of 7.7 percent y-o-y in the previous quarter. PMI fell marginally from 54.2 in September to 53.7 in October but remained in the expansionary zone. This marked the eighth consecutive month in which Singapore’s private sector economy has expanded.
Labor: Singapore’s unemployment rate is expected to increase marginally from 1.9 percent in the second quarter 2023 to 2.0 percent in the third quarter, reflecting a slow upward trend.
Inflation: Headline inflation experienced a slight uptick in October. It rose from 4.1 percent in September to 4.7 percent y-o-y in October. Headline inflation is likely to remain volatile in the coming months due to fluctuations in the Certificate of Entitlement (COE) prices.
Financial markets
Currency: The Singapore dollar depreciated by 0.4 percent m-o-m against the US dollar in October 2023, compared to 1.0 percent m-o-m in September.
Policy rate: The policy rate remained unchanged in October as inflationary pressures eased and economic growth beat expectations. The Monetary Authority of Singapore (MAS) announced that it would shift from semi-annual to a quarterly schedule of policy statements in 2024—a move that analysts believe is in response to the uncertain global economic and geopolitical landscape.
Capital inflows: FDI inflows are estimated to increase to $31 billion in the third quarter 2023 from $17 billion in the second quarter.
Thailand’s economy grew much slower than expected in the third quarter 2023 at 1.5 percent y-o-y, weighed down by slow exports and government spending (Exhibit 7). The quarterly growth was the slowest in the past three quarters, having risen 1.8 percent y-o-y in the second quarter and 2.6 percent y-o-y in the first quarter. Growth was driven by private consumption and a recovery in tourism.
Thailand’s inflation is among the lowest in Southeast Asia and has been steadily easing over the past few months. Private consumption has seen growth, with labor market and incomes improving, especially in tourism-related sectors. PMI declined from May 2023 to June, but stayed above the 50 no-change mark, signaling the manufacturing sector’s steady expansion.
Macroeconomic outlook
GDP: Thailand’s economy slowed to 1.5 percent y-o-y in the third quarter 2023 in comparison to 1.8 percent y-o-y in the second quarter. The third-quarter growth was disappointing and largely reflected the slowness in merchandise exports and government spending. Government consumption fell by 4.9 percent y-o-y, the fifth consecutive contraction. While part of the contraction reflects the withdrawal of spending to mitigate the COVID-19 pandemic impacts, the disbursement rate of the budget was low, at just above 20 percent of the total budget.
Overall investment growth of 1.5 percent y-o-y was weighed down by the 2.6 percent y-o-y contraction in public investment. Meanwhile, private investment rose by 3.1 percent y-o-y in the third quarter, up from 0.8 percent y-o-y in the second quarter, indicating improving optimism in the private sector.
Private consumption: Household spending was a bright spot of the third quarter, expanding by 8.1 percent y-o-y after a similar rate of expansion in the previous quarter. Household consumption was resilient despite higher interest rates, supported by the low unemployment rate, which is currently sitting at 1 percent.
Trade: Despite a strong recovery in the tourism sector, export growth was tentative at 0.2 percent y-o-y, owing to slow performance in goods exports, which declined by 3.0 percent. Muted demand for computer parts and accessories persisted, although export receipts improved for other items such as integrated circuits and vehicles. Imports slumped by 10.3 percent as a result of lower energy prices and slower manufacturing activities.
Industrial activity: Industrial production contracted by 5.5 percent y-o-y in the third quarter 2023, at the same rate as in the previous quarter. This was especially true for export-oriented industries following softening demand from major economies. The PMI fell from 47.8 in September to 47.5 in October. Posting below the 50.0 no-change mark for a third straight month, the latest PMI signaled another deterioration in operating conditions at the fastest pace since February 2021. This was as new orders, including from abroad, declined at the start of the fourth quarter.
Labor: Thailand’s tourism has recovered steadily since the COVID-19 pandemic. With the uptick in tourism activities and tourism-related jobs, the unemployment rate has remained low, close to 1 percent in the third quarter 2023.
Inflation: There has been a downward trend in inflation since the start of 2023—inflation in the first quarter was 4.2 percent, which fell to 2.4 percent in the second quarter, and then to 0.5 percent in the third quarter. In October 2023, inflation contracted by 0.3 percent, which marked the first decline in 25 months. This can be attributed to the decrease in the prices of energy and consumer goods due to the government’s cost-cutting measures, as well as lower pork and fresh vegetables prices compared to 2022. Excluding fresh food and energy, the core inflation rate increased by 0.66 percent to 0.41 percent m-o-m in September from 0.23 percent m-o-m in June.
Financial markets
Currency: The Thai baht depreciated by 1.7 percent m-o-m against the US dollar in October compared to 2.4 percent m-o-m in September 2023, following the year’s trend. Overall, it has depreciated almost 5 percent m-o-m since June.
Policy rate: The Bank of Thailand kept its policy rate unchanged in October 2023. It had increased to 2.5 percent in September, the eighth consecutive rate hike since 2022 aimed at tackling inflation.
Capital inflows: FDI inflows increased to $8 billion in the third quarter 2023 compared to $2 billion in the previous quarter.
Vietnam’s economy picked up pace in the third quarter 2023 as GDP growth accelerated to 5.3 percent y-o-y growth from 4.1 percent. Nonetheless, this is still slower than the pace of previous upswings owing to global export demand losing steam (Exhibit 8).
GDP growth is supported by a robust services sector, with a 6.3 percent y-o-y output increase in the first nine months of 2023, driven by strong retail sales and tourism resurgence. Visitor arrivals are now at 69 percent of pre-COVID-19 levels in 2019. Vietnam’s manufacturing exports face challenges due to a slower demand in key markets (European Union and the Unites States), which collectively comprise 42 percent of its exports.
Macroeconomic outlook
GDP: Vietnam’s economy accelerated at 5.3 percent y-o-y in the third quarter 2023 from 4.1 percent y-o-y growth in the second quarter. The service sector was the main contributor to GDP expansion in the third quarter due to the high growth momentum seen in the commercial and tourism sectors. Fixed investment decreased to 1.8 percent y-o-y in the third quarter from 2.9 percent in the second quarter.
Private consumption: Consumption growth increased from 2.9 percent in the second quarter 2023 to 3.7 percent in the third quarter. Retail sales and consumption service revenues rose by 9.7 percent y-o-y during the same period.
Trade: Both exports and imports improved in the third quarter 2023 compared to the second quarter in 2023. Exports have improved to 2.3 percent y-o-y from –7.2 percent y-o-y growth in the second quarter 2023. Meanwhile, imports improved to 1.4 percent y-o-y from –12.8 percent y-o-y in the second quarter; trade balance (goods and services) contributed 14.52 percent to GDP.
Industrial activity: Industrial production growth increased by 2.8 percent in the third quarter 2023 from 0.4 percent in the previous quarter. PMI, however, remained contractionary in October, dipping to 49.6 from 49.7 in September. The reading signaled a second consecutive monthly deterioration in the sector’s health as firms continued to scale back production, despite modest improvements in new orders.
Labor: The unemployment rate remained at 2.3 percent in the third quarter 2023, much the same as the second quarter.
Prices: Inflation eased to 3.6 percent y-o-y in October 2023 from 3.7 percent y-o-y in September. At a quarterly level, inflation rose marginally from 2.4 percent in the second quarter to 2.9 percent in the third quarter. However, it is still lower than 4.8 percent at the start of the year.
Financial markets
Currency: The dong depreciated marginally at 0.2 percent m-o-m against the US dollar in October 2023, compared to 0.6 percent m-o-m in September.
Policy rate: The central bank raised policy rates by 100 basis points in October 2023 in a move to head off inflation risks, maintain stability, and protect its banking system. Vietnam’s central bank in the first half of the year cut its policy rates four times to spur growth, but slower global demand for major exports such as electronics, textiles, and footwear has kept firms from expanding production further.
Capital inflows: In the first nine months of 2023, Vietnam’s FDI is estimated at $15.9 billion, 2.2 percent over the same period in 2022. This is the highest amount of realized foreign direct investment in nine months in the past five years.
With COP28 turning the world’s attention to sustainability, the topic has become a focal point for countries in Southeast Asia, as countries look at how they can address decarbonization challenges and assess what effect the transformation will have on their economies. Drawing on a joint report from Singapore’s Economic Development Board and McKinsey, Powering progress in Southeast Asia’s renewable development, we outline progress being made in the region on the journey to net zero.
Sustainability in Southeast Asia: A renewable energy perspective
Southeast Asia countries aim to achieve net-zero emissions by between 2050 and 2060, which will, by necessity, include a massive deployment of renewable sources of energy. These goals, however, are not yet reflected in increases in the region’s renewables’ capacity, something that is vital to reach the net-zero goals on time. Southeast Asia has reached a crossroads and significant efforts are now needed to bring about the transformation of economies based on fossil fuels to ones powered by renewable energy.
Southeast Asia has significant renewables potential—16 terawatts (TW) of solar photovoltaic (PV) energy and 1 TW of wind power. Yet, investment in solar and wind has been slow, with Southeast Asia receiving the second-lowest investment in the world, largely because of policy uncertainty. This has resulted in a higher cost of capital, which, in turn, has negatively affected the competitiveness of the regions’ renewables. To reach its net-zero emissions goals, Southeast Asia needs to increase its capacity additions seven to 12 times for solar PV and onshore wind power, to about 36 gigawatts (GW) per annum for solar for 2030 to 2050, and approximately 12 GW per annum for onshore wind for the same period.
Southeast Asia’s unique conditions will likely affect its energy transformation
The region is unlikely to follow similar renewables’ pathways to other parts of the world, as its context is significantly different. The increase in renewables in the European Union and North America has been driven by generous subsidy schemes, stable regulatory frameworks, ambitious decarbonization agendas, and private sector support. However, Southeast Asia is faced with issues that slow the decarbonization transformation:
- A higher sensitivity to tariff levels: Southeast Asian power tariffs are among the lowest globally as regional governments try to balance economic development—subsidizing fossil fuels and artificially lowering the cost of electricity generation—with renewables development to meet decarbonization targets.
- A tighter regulatory framework: Power generation in Southeast Asia is still a largely regulated activity. Most Southeast Asian markets have vertically integrated incumbents with some degree of openness to independent power producers (IPPs) that rely on long-term contracts and capacity payments. In contrast, generation markets in Europe have more liberal and competitive wholesale markets, allowing quicker investments in new technologies and value pools to shifts from conventional to renewable electricity generation.
- Constraints on consumer choices: Southeast Asia has long-term sustainability targets, and it is likely that many consumers will be willing to help reach them, driven as they are by environmental consciousness and international commitments. Consumers are constrained by regulatory frameworks, but they could bring additional renewables’ momentum in terms of a demand shift and a push for a green supply of energy.
- Limited sector participation: The market share and concentration of publicly owned utilities in Southeast Asia is significantly higher than in the European Union and United States, where initial renewables’ growth was driven by private sector IPPs. Publicly owned utilities in Southeast Asia may provide stability but they prevent the private sector from being able to accelerate change in the utilities industry.
Various countries are starting to address the challenge
Recognizing the potential opportunities that arise from the urgent need for renewable energy sources, some Southeast Asian countries have instituted sustainable development programs such as Malaysia, Singapore, and Thailand.
Malaysia
Malaysia has set energy targets to achieve 70 percent renewables in its power mix by 2050, which means increasing installed capacity by 11 compared to 2023 levels. In 2021, Malaysia’s total power generation amounted to 36.2 GW, most of which came from coal and natural gas, while renewable sources (excluding hydropower) accounted for only about 4.5 percent of installed capacity.
To address this, the Malaysian government initiated a competitive bidding program in 2016 for companies wishing to supply solar energy. Large-scale bidding has become increasingly competitive and, as a result, is a key driver in boosting renewable energy capacity, with a total of around 2.5 GW of project licences awarded.
Singapore
At present, 95 percent of Singapore’s power generation comes from imported natural gas, making the need for renewable energy critical. However, Singapore is limited in the number of solar plants it can develop because of its land size. As a result, the government has initiated its Green Plan 2023, a multiministry program to import up to 4 GW of low-carbon electricity from Southeast Asian power grids by 2035. At the same time, the country will continue to expand its solar capacity, energy storage, and low-carbon energy storage (including hydrogen).
Singapore’s Energy Market Authority has undertaken trials of importing 100 megawatts (MW) of renewables from Indonesia, Lao PDR, and Malaysia. It has also put out a request for proposals and awarded conditional approvals to import 1 GW of electricity from Cambodia and 2 GW from Indonesia.
Thailand
Thailand has committed to reaching carbon neutrality by 2050 and net-zero emissions by 2065. To reach this target, the country will need its share of renewable power generation to reach approximately 74 percent by 2050. In 2021, renewable energy sources contributed only 11 GW (almost 23 percent) of the country’s total installed capacity.
With this goal in mind, the Energy Regulatory Commission has announced plans to source renewable energy power under feed-in tariffs (FITs) from 2022 to 2030. Under new renewable quota regulations, state distribution utilities have been purchasing targets of nearly 5 GW of wind, solar, and solar-plus-battery energy storage systems. In addition, they are offering power purchase agreements at specific FIT rates with terms ranging from 20 to 25 years.
The third quarter of 2023 has seen mixed economic performance in Southeast Asian countries. A lower demand for manufacturing and slower external conditions have been the major factors affecting regional economies, while depreciating currencies have also had an impact. On the other hand, GDP growth has shown positive movement in most countries against a global downward trend, boosted by a recovery in tourism, government spending, and domestic demand.
