The World Bank has raised its growth forecasts for East Asia and the Pacific region, citing support from exports related to artificial intelligence; however, the bank also warns that this reliance on the prosperity of AI makes the region vulnerable to any reversal in global technology spending.
The region includes 23 economies, covering China, Vietnam, Indonesia, Malaysia, and Thailand.
According to the latest report released on Tuesday, the economy of East Asia and the Pacific region is expected to grow by 4.5% this year, an increase of 0.3 percentage points from the forecast in April. The report predicts that the growth rate will slow down to 4.4% in 2027 and further decline to 4.3% in 2028. Among the major economies in the region, Vietnam has seen the largest upward adjustment, with its growth forecast increased by 1.1 percentage points to 7.4%.
However, the strong performance of this region is highly dependent on AI-related manufacturing and exports. The World Bank states that trade growth, excluding AI-related goods, is "weak or negative." In most economies in this region, such products contribute to more than half of export growth; in Malaysia, the Philippines, Thailand, and Vietnam, this proportion exceeds 70%.
The report states that in the 12 months up to April, China, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam exported a total of $1.4 trillion worth of AI related goods.
Official data shows that South Korea's exports in September increased by 83.5% year-on-year, reaching a record $120.9 billion, of which chips accounted for half of the total exports. Considering the dominant position of semiconductors in the South Korean market, the World Bank pointed out that as of the end of April, just two chip manufacturers—Samsung and SK Hynix—accounted for 43% of the market value of the benchmark Kospi index.
The risks are also reflected on the expenditure side. The World Bank states that AI related capital expenditures have reached about 6% of the United States' GDP, which is comparable to the peak of information technology investment in 2000, and that the current cycle's growth rate is "faster than in the previous two cycles, and it is still accelerating."
In its annual economic report released in June, the Bank for International Settlements warned that the scale and speed of this boom are similar to those of the Internet bubble in the 1990s and other "mania" phenomena.
The financing that drove this round of prosperity is also less transparent. The World Bank states that among the $2.9 trillion in capital expenditures planned for 2025 to 2028, it is estimated that $800 billion will come from private credit; related lending is expected to account for 34% of total activity in 2025, up from the average of 18% in the previous five years. This year, private credit portfolios have seen downward valuations, outflows of funds, and defaults.
The World Bank stated that the private credit market "has low visibility and has not yet been tested by a severe downturn."
However, the report indicates that against the backdrop of major central banks raising interest rates for the first time since 2023 and recent tightening of financial conditions, the prosperity of AI, which has been supported by ample liquidity, may slow down. The Federal Reserve of the United States raised interest rates last month, marking the first increase in over three years, and hinted that there will be another rate hike this year as well.
The World Bank stated that the correction does not necessarily mean that the AI supercycle has broken, but it does indicate that related investments “have already surpassed actual demand.”
According to this statement, for every 1 percentage point slowdown in the U.S. economic growth rate, the growth rates of other emerging market economies are expected to be reduced by an average of 0.6 percentage points, and the impact on investment is approximately twice that amount. "If the slowdown is concentrated in the AI sector, given East Asia's important role in the AI supply chain, this will have a substantial impact on East Asia."
Banking financing represents the most widespread exposure to risk. The World Bank states that the foreign currency-denominated liabilities of banks in some countries are quite substantial—29.2% in Malaysia and 20.7% in the Philippines.
Taiwan's statistical authorities recently raised their economic growth forecast for 2026 from 9.6% to 11%, citing strong demand as the reason; however, in June, the same department also warned that "if the high-tech industry faces headwinds, the negative impact on the local economy could be greater than expected."
