Singapore, September 17 (ANI): Southeast Asia's economic growth is showing a growing divergence, with technology and export-driven economies such as Vietnam and Malaysia gaining momentum, while weaker domestic demand is slowing growth in Thailand and the Philippines, according to McKinsey & Company's September 2026 quarterly review.

"The second quarter therefore leaves Southeast Asia with a more differentiated growth picture: a powerful external technology cycle continues to provide momentum, while the energy shock is testing how effectively individual economies can translate that tailwind into broader domestic growth," the report said.

It added that the region's growth outlook will depend on inflation, currency pressures and household spending in the coming quarters.

Vietnam's economy grew 8.39 per cent year-on-year in the second quarter, up from 7.8 per cent in the first quarter. Malaysia's growth also accelerated to 6 per cent from 5.4 per cent.

Singapore recorded strong growth of 5.9 per cent, while Indonesia's economy expanded 5.29 per cent.

In contrast, Thailand's growth slowed to 1.9 per cent in the second quarter from 2.8 per cent in the previous quarter. The Philippines grew 2.3 per cent, marking its slowest pace since 2021.

"Technology and export-led economies gained momentum while softer domestic activity weighed on others," McKinsey said.

Exports remained a key source of strength across the six economies covered in the report -- Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

Strong technology demand supported electronics and electrical (E&E) exports across the region, while manufacturing activity improved in Malaysia, the Philippines, Singapore and Vietnam.

Singapore benefited strongly from demand linked to artificial intelligence (AI), with manufacturing growth accelerating to 12.5 per cent in the second quarter. Non-oil domestic exports surged 27.4 per cent, while total merchandise trade increased 40.2 per cent.

Malaysia's exports rose 42.4 per cent in the second quarter, supported by E&E demand. Vietnam's exports increased 22.7 per cent, driven by electronics, machinery and mobile phones.

However, rising energy costs are putting pressure on economies across the region. Inflation accelerated in five of the six economies covered in the report.

The Philippines recorded average inflation of 6.8 per cent in the second quarter, while Vietnam's inflation stood at 5.25 per cent. Indonesia was the exception, with easing food prices and improved domestic supply conditions helping lower inflation.

Policy responses have also varied across the region. Indonesia and the Philippines tightened monetary policy, while Singapore tightened its exchange-rate policy. Malaysia, Thailand and Vietnam maintained their existing policy settings.

McKinsey said technology-led exports and improving manufacturing activity provide a strong base for growth in the second half of the year.

However, it added that the sustainability of growth will depend on inflation, currency pressures, household demand and the durability of the global technology investment cycle. (ANI)