Southeast Asia growth picture diverges as Vietnam, Malaysia gain momentum: McKinsey

Economic growth across Southeast Asia is showing signs of divergence, according to the September 2026 quarterly review from McKinsey & Company. The report indicates that technology and export-driven economies, specifically Vietnam and Malaysia, are gaining momentum, while Thailand and the Philippines are experiencing a slowdown due to weaker domestic demand.

The report notes that a robust external technology cycle is providing momentum to the region, though rising energy costs are testing the ability of individual nations to convert these gains into broader domestic growth. Future economic performance in the region is expected to depend on inflation levels, currency pressures, and household spending.

Data from the second quarter of 2026 shows Vietnam’s economy grew by 8.39 percent year-on-year, up from 7.8 percent in the first quarter. Malaysia’s growth accelerated to 6 percent from 5.4 percent. Singapore recorded growth of 5.9 percent, and Indonesia’s economy expanded by 5.29 percent. Conversely, Thailand’s growth slowed to 1.9 percent from 2.8 percent, and the Philippines grew by 2.3 percent, marking its slowest pace since 2021.

Exports remained a primary driver of strength across the six nations analyzed: Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. Strong demand for technology supported electronics and electrical exports, while manufacturing activity improved in Malaysia, the Philippines, Singapore, and Vietnam. Singapore saw manufacturing growth accelerate to 12.5 percent, with non-oil domestic exports rising by 27.4 percent and total merchandise trade increasing by 40.2 percent. Malaysia reported a 42.4 percent increase in exports, while Vietnam’s exports grew by 22.7 percent, led by electronics, machinery, and mobile phones.

Rising energy costs have contributed to inflationary pressure, with five of the six surveyed economies experiencing accelerated inflation. The Philippines recorded average inflation of 6.8 percent in the second quarter, while Vietnam’s inflation reached 5.25 percent. Indonesia was noted as an exception, where easing food prices and improved supply conditions helped lower inflation.

Monetary and exchange-rate policy responses have varied. Indonesia and the Philippines tightened monetary policy, while Singapore tightened its exchange-rate policy. Malaysia, Thailand, and Vietnam maintained their existing policy settings. McKinsey concluded that while technology-led exports and manufacturing provide a strong foundation for the second half of the year, the sustainability of this growth remains contingent on global technology investment cycles and domestic economic factors.

Article and image source: malaysiasun.com