The World Bank has upgraded its economic growth forecast for East Asia and the Pacific, buoyed by the strengthening of regional trade driven by artificial intelligence exports. However, the institution cautioned that such heavy dependence on AI demand leaves local economies vulnerable to a potential slowdown in global technology spending. The region is now projected to expand by 4.5% this year, marking a 0.3 percentage point increase from the bank’s April projections, before growth moderates to 4.4% in 2027 and 4.3% in 2028.
Among the major economies in the region, Vietnam received the largest upward revision, with the World Bank lifting its growth projection by 1.1 percentage points to 7.4%.
The East Asia and the Pacific region encompasses 23 economies, including China, Vietnam, Indonesia, Malaysia, and Thailand.
AI Exports Drive Much of the Regional Growth
Manufacturing tied to artificial intelligence has emerged as a primary catalyst for regional exports. The World Bank noted that trade growth excluding AI-related commodities has stayed weak or negative. Across the majority of regional economies, AI products accounted for over half of all export growth, with that share surpassing 70% in Malaysia, the Philippines, Thailand, and Vietnam.
During the 12-month period ending in April, China, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam collectively exported USD 1.4 trillion worth of AI-related goods. South Korea similarly experienced a substantial surge in exports, with official figures indicating an 83.5% jump in September to reach a record USD 120.9 billion.
Semiconductors made up half of those deliveries. Furthermore, Samsung and SK Hynix together comprised 43% of the benchmark Kospi index’s total value at the close of April. Taiwan has likewise profited from robust technology demand, prompting its statistics bureau to elevate its 2026 growth outlook from 9.6% to 11%.
Even so, Taiwan’s agency issued a warning in June indicating that weakness within the high-tech sector could exert a heavier negative toll on the domestic economy.
AI Spending Surge Raises Global Risks
The World Bank pointed to worldwide AI spending as a critical source of risk. Capital expenditure related to artificial intelligence has climbed to roughly 6% of U.S. GDP, matching the peak levels seen in information-technology investments during the year 2000. Additionally, this ongoing investment cycle has expanded at a faster pace than past cycles and keeps accelerating.
Similar apprehensions were voiced by the Bank for International Settlements in June, whose annual economic report drew parallels between the scale and velocity of the current boom and the dot-com bubble alongside other historical manias.
Exposure is further compounded by financing structures. Businesses are projecting roughly USD 2.9 trillion in AI-related capital expenditures between 2025 and 2028. Private credit could supply around USD 800 billion of that sum, with AI-driven lending accounting for 34% of overall private credit activity in 2025.
By comparison, that figure averaged 18% over the preceding five years. Private credit portfolios have also encountered markdowns, capital outflows, and defaults this year. The World Bank observed that private credit markets remain less transparent and have yet to undergo a severe downturn.
Read More: World Bank Flags Heat Risk to India’s Jobs, Cities and Economic Growth
Higher Rates Could Test the AI Investment Cycle
The AI boom could be dampened by tighter global financial conditions. Major central banks have begun lifting interest rates for the first time since 2023, with the U.S. Federal Reserve implementing a rate hike last month—its first increase in over three years—while also hinting at another potential raise before the year ends.
According to the World Bank, a market correction would not necessarily spell the end of the AI investment cycle; rather, it could signal that investments have outpaced actual demand. A one-percentage-point deceleration in U.S. economic growth could trim growth across other emerging markets by an estimated 0.6 percentage point, while the impact on investment could prove roughly twice as severe.
East Asia is particularly vulnerable given its pivotal position in the global AI supply chain. Another transmission channel for risk stems from bank funding, with foreign-currency liabilities among banks reaching 29.2% of GDP in Malaysia and 20.7% in the Philippines.
Final Thoughts
While the World Bank has boosted its growth outlook for East Asia as AI exports bolster trade and manufacturing, heavy reliance on technology demand, escalating private credit exposure, and tighter financial conditions could challenge regional expansion if worldwide AI investments falter.
