Southeast Asia (SEA) is entering a new phase of economic expansion, marked by resilience on the one hand and increasing divergence on the other. Manufacturing, services, technology-linked demand and public spending continue to support activity across much of the region. However, differences in domestic demand, investment momentum, infrastructure spending and exposure to global shocks are producing increasingly varied growth trajectories.
The latest Asian Development Outlook (ADO) September 2026 reflects this changing landscape. The Asian Development Bank (ADB) has revised its growth forecast for SEA upwards from 4.6 per cent to 4.7 per cent for 2026 and from 4.8 per cent to 4.9 per cent for 2027. However, the regional outlook masks significant differences between economies. Vietnam records the largest upward revision, followed by Malaysia and Thailand, while Indonesia’s forecast remains unchanged. Growth forecasts have been lowered for the Philippines, Cambodia, Myanmar and Brunei Darussalam.
The divergence is increasingly linked to three broad factors, viz., integration into technology and electronics supply chains, the scale and effectiveness of public investment and policy support, and the strength of domestic demand.
For infrastructure, this differentiation is significant. Manufacturing expansion requires industrial estates, logistics networks, power systems and digital infrastructure. Rising urban demand requires transport, water, energy and social infrastructure. Besides, climate risks and higher energy costs are increasing the importance of resilient infrastructure systems.
Consequently, the region’s next phase of growth is likely to depend not only on the volume of investment, but also on where and how infrastructure capacity is created.
Growth remains resilient amid widening divergence
Economic activity across SEA remained broadly resilient during the first half of 2026. Manufacturing and services sustained activity across much of the subregion, supported by consumption and public spending in several economies. However, high food and energy costs, incomplete tourism recovery, delayed project implementation and domestic uncertainty constrained demand and investment elsewhere.
Technology-linked external demand has emerged as an increasingly important differentiator. The global artificial intelligence investment cycle and the resulting demand for electronics and digital infrastructure are benefiting economies that are deeply integrated into global technology supply chains.
In contrast, the Philippines’ 2026 growth forecast has been reduced from 3.8 per cent to 3.3 per cent, with weak public investment contributing to the downgrade. A rebound is nevertheless expected in 2027, when growth is projected at 5.1 per cent.
The contrast illustrates how infrastructure and investment are becoming increasingly intertwined with economic performance. Economies that can translate external demand into manufacturing capacity and supporting infrastructure are positioned differently from those where project implementation, domestic uncertainty or weaker investment constrain activity.
Indonesia builds on domestic demand
Indonesia continues to demonstrate relatively stable growth, with ADB forecasting a gross domestic product (GDP) expansion of 5.2 per cent in both 2026 and 2027. The economy grew by 5.6 per cent year-on-year in the first quarter of 2026 and 5.3 per cent in the second quarter, resulting in 5.4 per cent growth during the first half. Domestic demand remained the principal driver, supported by investment and government consumption, while net exports deducted from growth as imports expanded faster than exports.
The government’s fiscal stance has remained supportive. During the first half of 2026, expenditure increased by 17.8 per cent year-on-year, while central government spending rose by 29.4 per cent. Ministry and agency spending increased by 40 per cent, reflecting expenditure on priority programmes, social assistance and infrastructure.
This investment environment has direct infrastructure implications. Indonesia’s growth model continues to rely heavily on domestic consumption, while infrastructure spending supports connectivity, industrial development and urbanisation. At the same time, the country faces exposure to higher international energy prices and a potentially stronger El Niño effect.
Energy security and infrastructure resilience are consequently becoming increasingly connected. Indonesia’s infrastructure priorities will need to accommodate both continued economic expansion and greater climate- and energy-related uncertainty.
Malaysia benefits from the technology cycle
Malaysia is emerging as one of the principal beneficiaries of the global technology upcycle. Its growth forecast has similarly been revised upwards, from 4.6 per cent to 4.9 per cent in 2026 and from 4.5 per cent to 4.7 per cent in 2027. The semiconductor upcycle and data centre investment are reinforcing consumption and construction activity.
Investment increased by 5.9 per cent during the first half of 2026, although this was slower than the 10.9 per cent increase recorded during the corresponding period of 2025. Private investment grew by 6 per cent and public investment by 5.8 per cent.
Infrastructure spending is also evolving as major projects approach completion. Government investment moderated as fixed-asset spending and expenditure on large infrastructure projects slowed, with the East Coast Rail Link and Pan Borneo Highway Sarawak nearing completion.
At the same time, the technology sector is generating a new investment cycle. Electrical and electronics exports increased by 43.9 per cent during the first half of 2026 and accounted for nearly half of Malaysia’s total exports. Data centre investment and semiconductor activity are also supporting construction and related infrastructure requirements.
This creates a transition in the nature of infrastructure demand. While large transport projects remain important, future investment is increasingly likely to be driven by digital infrastructure, industrial facilities, power supply, data centres and advanced manufacturing ecosystems.
Vietnam strengthens its manufacturing platform
Vietnam has recorded the largest upward revision in ADB’s September outlook among the region’s economies. Its growth forecast has been raised from 7.2 per cent to 7.8 per cent for 2026 and from 7.0 per cent to 7.6 per cent for 2027. Rapid manufacturing expansion, foreign direct investment and resilient services are supporting this trajectory.
The country’s growth trajectory reflects its increasingly important role in global manufacturing and supply chains. Accelerated infrastructure spending and accommodative policies are supporting investment-led growth.
For infrastructure, the implications extend across multiple sectors. Manufacturing expansion requires industrial parks, roads, ports, logistics facilities, reliable electricity and increasingly sophisticated digital networks. The ability to co-ordinate these systems will influence the efficiency with which new investment can be absorbed.
The country’s strong growth forecast also highlights the importance of infrastructure capacity as a competitive factor. As manufacturers seek diversified production locations, the availability of efficient industrial and logistics infrastructure becomes increasingly important alongside labour and market considerations.
Thailand balances technology and tourism
Thailand’s economic outlook remains comparatively moderate, with growth forecast at 2.0 per cent in 2026 and 1.9 per cent in 2027. Electronics exports and technology investment are providing support, partly offsetting weaker tourism activity and higher energy costs. Government support has also helped household spending remain resilient, although high household debt continues to constrain consumption.
Infrastructure priorities in Thailand are increasingly influenced by the need to strengthen both economic competitiveness and climate resilience. ADB notes that the country is advancing irrigation and water-management projects in response to El Niño risks, alongside support for households and farmers.
The emphasis on water infrastructure is significant. Climate-related disruptions can simultaneously affect agricultural production, household incomes, electricity generation and prices. Infrastructure investment in irrigation, water management and resilience, therefore, has implications beyond individual sectors.
The Philippines faces an investment challenge
The Philippines presents a different trajectory. The 2026 growth forecast has been reduced to 3.3 per cent, although ADB expects growth to rebound to 5.1 per cent in 2027. Weak public investment has contributed to the downgrade, while higher food and fuel prices and softer labour market conditions have weighed on domestic consumption. At the same time, the country retains strong exposure to technology-driven trade. Electronics exports are expected to remain an important growth driver.
The contrast between export-oriented activity and weaker domestic investment highlights the importance of infrastructure implementation. Transport connectivity, industrial facilities, energy systems and water infrastructure require sustained capital expenditure and effective project execution.
The Philippines is also increasing investment in water-resource management and rehabilitating and expanding irrigation facilities as part of its response to climate risks. This suggests that infrastructure resilience will remain an important component of the country’s medium-term investment agenda.
Cambodia and emerging economies face uneven conditions
Cambodia’s 2026 growth forecast has been lowered from 4.1 per cent to 3.9 per cent, as tourism remains below pre-pandemic levels and border disruptions persist. Manufacturing and more diversified exports provide support, with growth expected to recover to 4.7 per cent in 2027.
The country’s fiscal deficit is expected to widen to 4.9 per cent of GDP in 2026, driven by higher infrastructure and social spending under its Comprehensive Intervention Program. Foreign direct investment remains an important source of support, while international reserves provide a buffer against external vulnerabilities.
Myanmar’s growth forecast has been reduced from 2.4 per cent to 2.2 per cent in 2026 and is projected at 2.7 per cent in 2027. Instability, supply constraints, import restrictions and weak investment continue to limit activity.
Brunei Darussalam faces a different structural challenge. Its 2026 growth forecast has been reduced from 1.8 per cent to 1.2 per cent, as stronger hydrocarbon production does not fully offset weakness in the non-oil economy.
For these economies, infrastructure investment has a particularly important role in supporting diversification, connectivity and resilience. However, project implementation, financing capacity and external conditions remain important constraints.
Technology reshapes infrastructure demand
One of the most important themes emerging from the ADO is the increasing influence of the technology and artificial intelligence investment cycle on regional growth. The effect is visible not only in export figures but also in infrastructure requirements.
Semiconductor facilities, electronics manufacturing plants and data centres require reliable electricity, high-quality industrial land, telecommunications networks, cooling systems and logistics connectivity. Their concentration in economies such as Malaysia, Vietnam and Thailand, therefore, is creating new infrastructure demand alongside traditional transport and urban development requirements.
Industrial investors increasingly require infrastructure systems capable of delivering reliability, speed and scale. Power availability, digital connectivity, transport access and supporting urban infrastructure are becoming part of the broader investment proposition.
The region’s infrastructure agenda, therefore, is moving beyond conventional physical connectivity towards integrated industrial and digital ecosystems.
Investment remains the critical enabler
Investment performance varies significantly across the region, but its importance is common across economies. Malaysia recorded 5.9 per cent investment growth during the first half of 2026, while Indonesia benefited from stronger government spending and investment. Vietnam’s expansion is being supported by accelerated infrastructure spending and foreign direct investment.
The composition of investment is also changing. Large transport projects remain important, but the next investment cycle is increasingly associated with manufacturing, semiconductors, data centres, energy systems, logistics facilities and urban infrastructure.
This creates opportunities for private capital. Industrial and digital infrastructure can generate new investment demand, while public infrastructure can provide the enabling framework required to attract private investment.
However, infrastructure investment must also contend with higher financing costs and uncertain external conditions. Project pipelines, therefore, need to be supported by appropriate financing structures, predictable policy frameworks and effective implementation capacity.
Climate resilience moves up the agenda
The economic outlook for SEA is increasingly exposed to climate-related risks. ADB identifies a strengthening El Niño as a major risk for 2027. Drought- and heat-related disruptions could constrain food production, water availability and energy generation, while increasing food and utility prices.
The implications are particularly relevant for infrastructure planning. Water infrastructure, irrigation systems, energy generation and transport networks are all vulnerable to climate variability. As a result, resilience is becoming an increasingly important criterion for infrastructure investment.
Thailand is advancing irrigation and water-management projects, while the Philippines is increasing investment in water-resource management and rehabilitating irrigation facilities.
For the region as a whole, this points towards a broader shift from infrastructure expansion towards infrastructure resilience. New assets will need to be designed not only for current demand but also for increasingly uncertain climatic conditions.
Infrastructure becomes a growth differentiator
The September 2026 ADO points to an SEA that remains resilient but is becoming increasingly differentiated. Technology-linked demand is accelerating growth in economies with strong electronics and digital supply-chain integration. Public investment is supporting infrastructure-led expansion in some markets, while domestic consumption and services remain important in others.
This differentiation is likely to shape the region’s infrastructure landscape.
Building the next infrastructure cycle
SEA’s growth outlook for 2026 and 2027 remains positive, but the nature of that growth is changing.
The region is no longer moving along a single economic trajectory. Manufacturing, technology investment, public spending, consumption, tourism and services are influencing countries differently. External shocks, particularly higher energy costs and climate disruptions, are adding another layer of uncertainty.
Against this backdrop, infrastructure is becoming more than a supporting element of economic growth. It is increasingly a differentiator of competitiveness.
The ability to provide reliable power, efficient logistics, digital connectivity, industrial capacity, water security and climate-resilient infrastructure will influence where investment is directed and how effectively economies can respond to changing global supply chains.
The ADB outlook consequently points towards an infrastructure agenda that must become more integrated. Transport infrastructure will need to connect manufacturing centres with ports and markets. Energy infrastructure will need to support industrial and digital demand while managing rising climate risks. Water infrastructure will need to strengthen resilience against drought and changing rainfall patterns. Digital infrastructure will increasingly underpin manufacturing and services.
For governments and investors across SEA, the next phase, therefore, is not simply about sustaining infrastructure spending. It is about aligning infrastructure investment with the structural shifts reshaping the region’s economies.
SEA’s resilience has so far been supported by strong domestic demand, manufacturing, services and public investment. Sustaining that resilience will increasingly depend on whether infrastructure systems can keep pace with the region’s evolving economic structure.
The next growth cycle is already taking shape, driven by technology, industrial transformation, urbanisation and investment. The infrastructure built to support it will determine how effectively the region can convert these opportunities into long-term, broad-based and resilient economic development.
Extracts from the Asian Development Outlook, September 2026
