East Asia Pacific AI Export Growth Masks Broader Weakness
The World Bank raised its 2024 growth forecast for East Asia and the Pacific to 4.5%, driven by AI-related exports.
The World Bank raised its 2024 growth forecast for East Asia and the Pacific to 4.5%, an upward revision of 0.3 percentage points from its April projection. This AI-driven export growth masks broader economic weakness across the 23-economy region, which includes China, Vietnam, Indonesia, Malaysia, and Thailand. AI-related goods now account for over half of total export growth across most regional economies.
In several key manufacturing hubs, the dependence is even more acute. AI-related manufacturing constituted more than 70% of recent export expansion in Malaysia, the Philippines, Thailand, and Vietnam. Six major regional economies-China, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam-exported $1.4 trillion worth of AI-related goods in the twelve months through April.
Traditional sectors lag as AI masks uneven development
Trade growth outside AI-related goods and advanced electronics has remained weak or negative. The World Bank said: "Trade growth, excluding AI-related goods, has been 'weak or negative.'" Traditional manufacturing, textiles, and commodity exports are experiencing subdued global demand.
The benefits of the AI manufacturing surge are narrowly concentrated. It primarily benefits highly skilled labor forces and capital-intensive corporate sectors. Vast segments of the traditional workforce lack comparable wage growth or job security, leaving the region's development uneven.
Forecasts upgraded but risks mount
The World Bank's upgraded outlook comes with significant caveats. Growth is forecast to ease to 4.4% in 2027 and 4.3% in 2028. Vietnam received the largest forecast upgrade among major economies, with its expected 2026 GDP growth revised upward by 1.1 percentage points to 7.4%. China's growth is projected at 4.4%, held back by labor market weakness and property sector troubles.
A slowdown concentrated in AI would be material for East Asia because of the region's prominence in the AI supply chain. The current AI investment cycle has risen faster than previous ones and is still gaining speed, with capital expenditures related to artificial intelligence reaching about 6% of U.S. GDP.
Financial risks are mounting. The AI boom, supported by abundant liquidity, could slow due to the latest tightening of financial conditions. The U.S. Federal Reserve raised rates last month, its first increase in more than three years, and signaled one more hike this year. Private credit markets, which are less transparent and untested by a serious downturn, have become deeply involved.
| Metric | Figure |
|---|---|
| AI-related lending share of private credit activity in 2025 | 34% |
| Average AI lending share over prior five years | 18% |
| Planned AI investment for 2025-2028 | $2.9 trillion |
| Estimated portion from private credit market | $800 billion |
Private credit portfolios have already experienced markdowns, outflows, and defaults this year.
Policy response urged to avoid overreliance
The World Bank advises regional governments to pursue aggressive structural reforms. These include enhancing domestic consumption, diversifying export portfolios, and investing in broad-based skills development. Reliance on a single technological megatrend is insufficient for sustainable economic development.
Adoption of AI tools inside regional businesses is uneven. Barriers include high costs, shortages of skilled workers, and worries about security and privacy. The World Bank warns that the current growth trajectory is vulnerable to a reversal in technology spending. Technological obsolescence and shifting trade policies in advanced economies could rapidly displace existing manufacturing hubs.
