Owing to factors like an extended COVID-19 pandemic, continued lockdowns in different parts of the world, increasing energy costs worldwide, and Russia’s continued war on Ukraine, there have been reports of a likely impending recession, and startups in Southeast Asia should be ready to cope with the ensuing challenges. 

Furthermore, there has been a slowdown in China’s export growth, which has caused stock market declines in Asia-Pacific (APAC), Europe, and the US. China has been hit hard by COVID-19, which has disrupted manufacturing, reduced imports, and insufficient demand for products in the region. Also, the country’s desire to control Taiwan has increased tensions with its neighbours and brought uncertainty to the markets.

Experts are, therefore, looking at downturn indicators to determine whether or not Recession 2022 will become a reality. The signs are already there of a drop-off in many sectors, and it will be difficult for Southeast Asia and Asia as a whole to continue their current economic recovery efforts if the rest of the world is struggling too. 

Global tech stocks have been suffering due to the bursting of the growth bubble created by the pandemic. Inflation is contributing too, and some investors are losing interest in participating in the market due to the extreme volatility caused by rising interest rates in the US. These rates affect companies with growth stocks like Southeast Asia’s Grab. It is suffering as people shift to more tried-and-tested value stocks.  

Impacts of a recession 

Despite the current global challenges, research from Statista updated in June this year shows digital investment in Southeast Asia will grow to USD $50.46 billion by 2026. The Association of Southeast Asian Nations (ASEAN) is not a stranger to surviving a recession, as statistics from the Economist Intelligence Unit, IHS Insight, show the region experienced minimal impact during the Great Recession in 2007.

Southeast Asia has also recovered quickly from the economic downturn brought about by the pandemic, as resultant lockdowns stimulated the digital transformation in the region. Investors still see room for growth, especially in the fintech, healthtech and edtech sectors.

However, the region has weaknesses that may be exacerbated during a recession. For example, excessive reliance on foreign investments may prevent funds from being available for infrastructure development and supporting startups. The trade dependence on countries like China, which is experiencing its own challenges, in tandem with geopolitical tensions in the South China Sea, is affecting supply chains, creating unrest and uncertainty in the markets, and enhancing the fear of war.

The hampered economic outlook creates the possibility that startups may struggle to attract investors. The likelihood of reduced investment exits due to a lack of funds in-flowing means new companies, despite having potential, might have a diminished investment appeal. In addition, economic recovery measures, global inflation, and protective policies, coupled with the slowdowns in GDP growth that began even before talk of a recession, may push away investors.

Surviving yet another economic downturn

Startups in Southeast Asia can take steps to sustain their operations until the markets recover. Founders should prepare for a volatile economy and work on growth, efficiency, and proper corporate governance. 

According to Bain Insights, private equity may continue to flow because the region has a large, young, and rapidly digitising population, meaning there is a market for startups despite the economic crisis. Thus, companies should strengthen their marketing strategies, focus on public relations, and work on branding to connect to their customers and build relationships with prospects. 

Content creation can help enhance their reputation while also showing the expertise of the business. Moreover, startups should assess their company status and target the ideal industries to earn more revenue.

Abheek Anand, managing director of Sequoia Southeast Asia venture capital firm, predicted that there would be limited access to capital in the foreseeable future and that companies need to focus on their fundamentals and establish good business models. 

Startups should seek alternative funding sources, such as blockchain games, that offer rewards and cryptocurrency. Changing the operational structure may help businesses remain agile, enabling them to sustain cash flow through the dark period. 

Finally, a vital area to focus on is cybersecurity. Criminals will want to profit from data and steal money as businesses will be busy coping with various challenges. Companies must continue to work toward their Environmental, Social, and Governance (ESG) goals, as investors will continue to look for new investment opportunities.

Ultimately, policymakers will have to remove barriers hindering funding in the region to boost the capital market growth. There may be a recession and startups in Southeast Asia should be protected from the negative global market impact.