DESPITE an addition of 40 million new users and an increase in online usage, South-east Asia's Internet economy is expected to achieve US$105 billion in gross merchandise value (GMV) this year, similar to the levels seen in 2019, a report jointly produced by Temasek, Google, and Bain showed.
While there is a surge in online shopping, entertainment consumption and food delivery services, these were offset by the declines in transport and online travel services, resulting in flat growth from the year before.
The year 2020 is the first time such estimates in the annual South-east Asia e-Conomy report - now in its fifth year - had not been revised upwards, and where yearly growth did not outpace previous years' estimates by much.
According to the report, Singapore was the only country in the region that saw a contraction in its GMV this year, falling 24 per cent to US$9 billion (see graphic).
With almost half of the Singapore's digital economy derived from online travel last year, the 70 per cent year- on-year fall in the sector has hit the city-state hard.
Meanwhile, digital economies in Vietnam and Indonesia managed double-digit growth - 16 and 11 per cent respectively - despite headwinds from the Covid-19 pandemic.
Aadarsh Baijal, partner and head of digital practice in South-east Asia at Bain & Company, told reporters in a press conference on Tuesday that the concentration of Singapore's Internet economy in online travel was largely since it was the "most mature sector".
Despite expecting a slow initial recovery for the online travel industry, the report said the decline in the Republic's digital economy is likely to be "short-term".
In the long run, these sectors are expected to recover and return to normal levels. Online travel is expected to have the steepest recovery, at a compound annual growth rate (CAGR) of 33 per cent, to reach US$60 billion in 2025, while transport and food is expected to rise to US$42 billion.
E-commerce is likely to rise to US$172 billion in five years, and online media to US$35 billion.
It is expected that Singapore's digital economy will bounce back with a CAGR of 19 per cent, and reach US$22 billion by 2025.
Indonesia's digital economy is expected reach US$124 billion; and Vietnam, US$52 billion.
As the digital economy surges ahead with increased adoption in the region, more investors are paying attention to opportunities available: especially in nascent and budding sectors such as fintech, healthtech and edtech.
Deal value in the fintech space surged to a record high of US $1.7 billion in 2019, a 40 per cent jump from the year prior.
More investments and consolidations in this space are expected in the coming years as financial and strategic investors capitalise on the fast-growing digital financial services sector, said the report.
However, overall funding for the region's digital economy has been declining steadily.
Deal value across the region has slid from the 2018 high of US$14.1 billion, dropping 14.9 per cent to about US$12 billion for 2019. This year, deal value fell even further in the first half, dropping 18.2 per cent year on year to US$6.3 billion.
This comes as funding for unicorns in South-east Asia has tapered from two years ago, as investors are now more particular, and looking more for companies with a viable business model, said Rohit Sipahimalani, chief investment strategist at Temasek.
However, he was quick to point out that most unicorns will still be able to access capital. "It's more of a function of demand than supply. These unicorns might not require that much of capital as they used to."