The World Bank upgraded its economic outlook for East Asia and the Pacific on Tuesday, raising its 2026 growth forecast to 4.5% from the 4.2% it projected in April. The 23-economy region—encompassing major developing nations including China, Vietnam, Indonesia, Malaysia, Thailand, and the Philippines—is expected to see growth ease to 4.4% in 2027 and 4.3% in 2028, according to the bank's latest report.
The forecast elevation reflects exceptional performance in artificial intelligence-related manufacturing and exports. Vietnam received the most significant upgrade among major regional economies, with its growth forecast rising 1.1 percentage points to 7.4%. Six regional economies—China, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam—collectively shipped $1.4 trillion of AI-related goods in the 12 months through April, the report states. South Korea, not formally part of the World Bank's East Asia and Pacific region but closely tracked alongside it, reported that exports grew 83.5% in September to a record $120.9 billion, with semiconductors comprising half of those shipments.
Despite the optimistic headline figures, the World Bank issued a stark warning about the region's economic imbalances. Trade growth excluding AI-related goods has been "weak or negative," the bank said, and AI products now account for more than half of total export growth in most regional economies. The concentration is particularly acute in Malaysia, the Philippines, Thailand, and Vietnam, where AI-related goods represent over 70% of export growth. The bank also highlighted structural vulnerability in individual economies: in South Korea, just two chipmakers—Samsung and SK Hynix—accounted for 43% of the benchmark Kospi index's value as of end-April, creating exposure to sector-specific shocks.
The core risk identified by the World Bank centers on the sustainability of global AI spending. Artificial intelligence-related capital expenditure in the United States has reached approximately 6% of GDP, matching the peak of information-technology investment in 2000, and the current cycle "has risen faster than either previous cycle and is still gaining speed," the bank noted. Early signs of cooling emerged in recent weeks. Frederic Neumann, chief Asia economist at HSBC Global Investment Research, observed in a note published Tuesday that "not only are prices for some key electronics easing, but new order and inventory data point to a pullback in demand." Shipments from Asia, including chip exports from Taiwan, have pulled back in both value and volume terms, though Neumann characterized the slowdown as still marginal and potentially "a mere wobble" in a multiyear surge.
A sharp reversal in the AI hardware cycle would expose the economic imbalances that have accumulated in Asia, according to regional analysts. Should such a reversal occur, the region would be especially vulnerable given its prominence in the AI supply chain. A slowdown of one percentage point in U.S. growth is estimated to cut other emerging-market growth by 0.6 percentage points, with the impact on investment roughly twice as large, the World Bank calculated. A contraction concentrated specifically in AI investment would hit East Asia disproportionately hard.
Further complicating the outlook, the financing behind the AI boom has become less transparent and less resilient. Of the $2.9 trillion in AI capital expenditures planned for 2025 through 2028, $800 billion is expected to come from private credit markets, where AI-related lending rose to 34% of activity in 2025 from an 18% average over the prior five years, according to the World Bank. Private credit portfolios have already experienced markdowns, outflows, and defaults this year, and these markets remain "less visible, and have not been tested by a severe downturn." The Bank for International Settlements warned in June that the AI boom bears resemblance to the dot-com frenzy of the 1990s and other historical "manias." The World Bank's report noted that tightening financial conditions—including rate increases by the U.S. Federal Reserve and other major central banks for the first time since 2023—could slow the AI boom supported by abundant liquidity. The Federal Reserve raised rates last month, its first increase in over three years, and has signaled one additional hike for 2026. While a correction may not necessarily result in a complete bust for the AI supercycle, the World Bank suggested that investment "had run ahead of realized demand."
