South-east Asia digital economy to surpass US$300 billion in 2025 as it rides AI wave

SINGAPORE - With Singapore continuing to be its anchor, the South-east Asian digital economy is expected to exceed US$300 billion (S$390 billion) by the end of 2025, according to a study out on Nov 11.

Gross merchandise value (GMV) – the value of goods sold on e-commerce platforms, among others – for the region hit US$299 billion as at June 2025.

The findings are from an annual report by consultancy Bain & Company, Temasek and Google, and covers Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

In 2025, the report also expanded to cover four more Asean countries – Brunei, Cambodia, Laos and Myanmar.

When those four countries are included, revenue hit US$100 billion, and GMV hit US$305 billion.

This means that the digital economy of the region in GMV has exceeded the inaugural report’s forecast of US$200 billion made a decade ago.

The rise of artificial intelligence (AI) is also expected to make the region ripe for transformation, especially with the region’s large internet population and its keen interest in AI, the report said.

Singapore is the region’s AI hub, with some 495 AI start-ups out of the region’s 680 AI start-ups located in the Republic.

Over US$2.3 billion has been invested in AI-related start-ups.

Temasek is also looking at AI as a theme in deciding where to invest its funds. Temasek South-east Asia head Fock Wai Hoong said: “AI is a global investment thematic that is impossible to ignore.”

Temasek is cautiously optimistic about AI investments, he added. AI start-ups captured more than 30 per cent of overall digital funding in the 2024, and this is only going to keep growing, he said.

Bain & Company partner Florian Hoppe said: “Singapore continues to anchor South-east Asia’s digital economy. Its early momentum in scaling AI capabilities can unlock a broader regional opportunity to turn transformation into lasting economic value. Importantly, it can also play a key role in unlocking funding and the exit environment for the region.”

Ms Sapna Chadha, Google’s vice-president for South-east Asia and South Asia Frontier, added that the transformative impact of AI and the shift towards sustainable profitability are clear.

“The future here will be defined by speed as the region harnesses its proven ability to seize the returns of this new age not in years, but in months,” she said.

“We remain deeply committed to partnering with South-east Asia as it accelerates towards its next ambition: becoming a thriving intelligent economy.”

The level of funding in the region’s digital economy has also stabilised as investors continue to emphasise a focus on quality growth, said Temasek’s Mr Fock. Investors are also looking at efficient capital allocation over absolute capital deployment, he said.

“Temasek remains committed to the region’s digital economy, by deploying our capital to growth-stage businesses, to help take proven business models from start-up to scale-up,” he added.

Temasek has historically been an investor in the early-stage space. A decade ago, its intent was to catalyse the early-stage ecosystem and draw investment into the digital economy, he told the media.

But now, it wants to play more meaningfully in the late-stage and growth space, he said. This is driven by Temasek’s goal of putting capital into things that catalyse change, while also generating the right returns profile for the investment company.

When it comes to South-east Asia, Temasek’s investments in the region have grown in dollar value, but the region remains a small part of its overall portfolio.

Temasek does see opportunity in the region, with the rise of its middle-income consumer market. Sectors like digital financial services, consumer platforms and even healthcare are areas of opportunity, Mr Fock said.

But Temasek also sees risks, especially in an uncertain geopolitical environment. Mr Fock said: “Geopolitical tensions are something that we think a lot about. This is particularly relevant across South-east Asia as you think about... the relative impact that tariffs have had in different geographies across South-east Asia.”

He also noted that the region has seen some high-profile fraud cases which could have dampened investor sentiment, and that instilling trust and corporate governance are vital.

At the 2025 report’s launch, Mr Fock also said positive signs of public market exits are emerging globally, as the region’s initial public offerings (IPOs) show signs of recovery. Singapore has about 30 IPOs in the pipeline, it was reported in August.

Broken down by segments, each sector of the region’s digital economy has also shown double-digit growth, the report showed.

When it comes to the e-commerce segment, revenue is picking up as the market consolidates, it said.

“Several domestic players have exited the market, which is consolidating around a smaller number of larger regional companies. These leading platforms are leveraging significant economies of scale, which create distinct competitive advantages,” it added.

The report also noted that video commerce has evolved from a niche channel into a mainstream force, driven by “shoppertainment” where content and commerce fuse, turning online shopping into an immersive and entertaining social experience.

GMV for food delivery has also grown steadily, by 14 per cent year on year, showing that this consumption pattern has shifted from being considered a luxury to routine, the report said.

“Despite macroeconomic challenges, demand for food delivery has remained buoyant,” it noted.

“Platforms are increasingly targeting segments that value affordability by introducing new products and diverse menu options, shifting the service from a discretionary luxury to a more accessible option for a broader consumer base.”

The transport segment, which includes ride-hailing services, also grew, by 16 per cent. Autonomous vehicles are expected to increase and take off in the next three to five years, said Mr Hoppe.

Online travel GMV has also grown on the back of travel volume recovering and increased airfares.

“Although passenger numbers have yet to fully return to pre-pandemic levels, the steady climb of passenger volumes in both foreign arrivals and outbound travel has kept pricing power strong,” the report noted.

The accommodation sector is experiencing strong growth too, underpinned by a sharp increase in hotel room rates across the region, the report said. It noted that hoteliers – especially in high-demand markets like Singapore and Malaysia – have raised average rates by over 20 per cent.

Among investors, there has also been “a cautious uptick” in interest, especially in late-stage deals and the digital financial services sector, the report said.

Private funding rose 15 per cent to US$7.7 billion in the last 12 months from the prior period. But private funding levels still remain at about 70 per cent of the high they hit in 2021.

Investments are also concentrated in late-stage rounds, the report said.

When it comes to countries that are expected to see funding increase, Singapore leads the pack, followed by Vietnam and Malaysia. Such funding is expected to have an emphasis on software and services, as well as AI and deep tech.

Ms Chadha said Singapore has the dual focus of driving digital innovation, while putting in place frameworks for AI governance.

Mr Fock added that Singapore is emerging as a centre for AI innovation, as AI companies in the region are attracted to set up their regional or global operations here.

“Ongoing efforts to strengthen regional cooperation and improve capital market conditions in Singapore will help to ensure that South-east Asia’s AI ambitions continue to be realised,” he said.