South-east Asia digital economy to hit US$368 billion GMV in 2026, US$1.1 trillion in 2035: report

[SINGAPORE] South-east Asia’s digital economy is projected to grow 17 per cent to US$368 billion in gross merchandise value (GMV) in 2026, driven by e-commerce expansion and accelerating artificial intelligence adoption.

The region is forecast to hit US$1.1 trillion in GMV by 2035 even as businesses navigate macroeconomic and geopolitical challenges, according to the e-Conomy SEA 2026 report by Bain, Google and Temasek, released on Wednesday (Oct 21).

The report covers 10 markets in South-east Asia: Indonesia, Malaysia, Singapore, the Philippines, Thailand, Vietnam, Brunei, Cambodia, Laos and Myanmar.

“AI helped unlock additional value and growth for the digital economy, and we think that’s a net positive for the region,” Bain partner Florian Hoppe told The Business Times.

While AI has emerged as a growth driver for the digital economy in South-east Asia, people are turned off if AI content is perceived as unauthentic or low quality, said Fock Wai Hoong, head, Asia-Pacific (excluding China and India), Temasek Global Investments.

But adoption of the technology is still in its early stages, with everyone exploring the use of AI tools, he said. “There’s some calibration that’s going on, and I’m sure at some point that it will be widespread adoption.”

Hoppe noted that AI has gotten “much better now” and is able to generate fairly high-quality content, especially in presenting products in the short-form video format for e-commerce sellers.

Within the digital economy, e-commerce will contribute the bulk of the growth, with forecasts of US$226 billion in GMV for 2026 and US$820 billion in GMV for 2035. The sector is strengthening its engagement and penetration in South-east Asia, including through loyalty programmes, free shipping and a wider selection of products.

Funding and exits

In South-east Asia, funding has shifted towards later-stage companies, raising US$2.9 billion in the first half of 2026, an increase from US$1.3 billion in H1 2025 and US$2.1 billion in H2 2025.

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Fock said that this is a reflection of investors looking for unit economics and ability to scale, among other themes that have been seen in the last couple of years.

Early-stage funding had just a slight increase, raising about US$580 million in H1 2026 compared with US$530 million a year earlier.

The narrative for the last couple of years has been about returns, Fock noted. “It’s clear that you can’t really invest in early-stage startups if you’re not demonstrating returns; no one’s going to give you the money.”

There is a positive side to the increase in late-stage funding, as new investors provide an exit and liquidity opportunities for earlier investors, returning capital for reallocation. This is helping to turn the flywheel for venture capital funds as they get exits and show returns.

“You’ll see that progressively drive investment dollars,” said Fock.

Funding for startups with an AI product has increased, capturing US$3.2 billion in H1 2026 compared with US$900 million in H1 2025. By deal count, AI funding captured more than 50 per cent of the early-stage investments in South-east Asia and 80 per cent of the overall funding.

But while AI funding here might look smaller in comparison to bigger markets like the US, Fock said that there are still attractive opportunities.

He noted that the rebound in the proceeds from initial public offerings in South-east Asia is an encouraging sign as public markets in the region can be a viable exit pathway.

IPO proceeds rose to US$6.8 billion in 2025 from US$3.7 billion in 2024, and to US$3.1 billion in H1 2026 compared with US$1.4 billion in H1 2025.

While recent IPOs on the Singapore Exchange have not performed well after listing, Fock noted that capital markets go through cycles and volatility. But regional exchanges have shown the capacity to provide viable exit routes, when macroeconomic conditions and geopolitical dynamics are favourable.

“When all the stars are aligned, these are very real and critical pathways for companies to pursue,” he added.

Singapore leads regional AI adoption

Across Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, about 58 per cent of the working population or 243 million people now use generative AI (GenAI).

The report highlighted that the Internet took over a decade to reach the same milestone GenAI has achieved in three years.

Singapore led the region in GenAI adoption, with Malaysia second and Vietnam third. Singapore also led South-east Asia in consumer tokens per GenAI user, weekly GenAI users and GenAI penetration.

However, Vietnam led in daily GenAI users at 26 per cent of the Internet population.

While Indonesia and Philippines lag other South-east Asian markets in AI adoption, Hoppe pointed out that the lowering of costs to use AI will be a big driver in driving adoption in these markets.

While each market in South-east Asia is different, consumers and enterprises will figure out which AI models will work for them, he noted.

“People are going to figure out what is the right model for the right task,” Fock said. “You don’t need the most powerful model to compare two tennis rackets, that just doesn’t make sense.”