Falling export demand, rising input costs, and shipping delays are dampening manufacturing activity in Southeast Asia

Export demand will remain weak through 2023 as global headwinds persist

Export demand in Southeast Asia is set to fall, driven by a growth slowdown in three key global demand centers, the US, China, and Europe. B2B firms should expect manufacturing activity—driven by export orders—to fall considerably in the next 12 months. This dynamic is likely to be particularly true for the consumer durables sector, as dampened spending combined with a pivot to staples and service consumption will weigh on export demand in this sector. To make up for the shortfall in external demand over the next 12 months, firms should look to capitalize on relatively strong domestic demand in Southeast Asia.


The region is beginning to see a slowdown in manufacturing activity in large part due to falling export demand. The Manufacturing Purchasing Managers’ Index (PMI), which is a survey-based indicator of business conditions, such as new orders and exports, recorded a large drop in the latest reading for most markets. A PMI reading above 50 indicates net optimism in the manufacturing sector and below 50 indicates net pessimism. Thailand’s PMI fell sharply from a three-month average of 53.9 in Q3 to 51.6 in October; meanwhile, Indonesia and Vietnam saw a substantial drop from 53.7 and 52.5 in September to 51.8 and 50.6, respectively, in October. Malaysia’s PMI fell further into contractionary territory, reaching 48.7 in October, while the PMI for the Philippines fell for the first time in three months to 52.6 in October. 

Our View

Export demand will fall even further from current levels, as the US and Europe will be in recession over the next six months and China will experience a significant growth slowdown through 2023 due to its zero-COVID strategy. Demand during the peak season in Q4 2022 and early 2023 will be much lower than expected, following which the export sector will see a mild recovery in H2 2023 as the global economy recovers. We expect Vietnam’s export manufacturing sector to be the most severely impacted, as it has the largest trade exposure to the US, Europe, and China. 

While global headwinds will weigh on Southeast Asia’s growth trajectory over the next 12 months, pent-up demand and strong domestic fundamentals will buttress domestic demand, making the region a global bright spot.

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