World Bank Raises East Asia Pacific Growth Forecast to 4.5%, Warns on AI Concentration

The region covers 23 economies, including China, Vietnam, Indonesia, Malaysia and Thailand. In its latest report released Tuesday, the bank forecast growth would ease to 4.4% in 2027 and 4.3% in 2028. Vietnam received the largest upgrade among major regional economies, with its forecast raised by 1.1 percentage points to 7.4%.

The region's momentum is tied closely to AI-related manufacturing and exports. Trade growth excluding AI-related goods has been weak or negative, the bank said. AI products accounted for more than half of export growth in most regional economies and more than 70% in Malaysia, the Philippines, Thailand and Vietnam. China, Indonesia, Malaysia, the Philippines, Thailand and Vietnam shipped $1.4 trillion of AI-related goods in the 12 months through April, according to the report.

South Korea offered a stark example. Official data showed its exports grew 83.5% in September to a record $120.9 billion, with chips making up half of those shipments. The World Bank highlighted that two chipmakers, Samsung and SK Hynix, accounted for 43% of the benchmark Kospi index's value as of the end of April.

The risk is concentrated on the spending side. AI-related capital expenditure has reached about 6% of U.S. GDP, similar to the peak in information-technology investment in 2000. The bank said the current cycle has risen faster than either previous cycle and is still gaining speed. The Bank for International Settlements warned in its annual economic report in June that the boom's scale and pace resembles the dot-com frenzy of the 1990s and other manias.

Financing the boom is also less transparent. Of $2.9 trillion in AI capital expenditure planned for 2025-2028, $800 billion is expected to come from private credit. AI-related lending rose to 34% of activity in 2025 from an 18% average over the prior five years. Private credit portfolios have seen markdowns, outflows and defaults this year. Private credit markets are less visible and have not been tested by a severe downturn, the bank said.

The AI boom, supported by abundant liquidity, could slow because of tightening financial conditions as major central banks raise rates for the first time since 2023. The U.S. Federal Reserve raised rates last month, its first increase in more than three years, and signaled one more hike this year. A correction would not necessarily mean a bust for the AI supercycle, but investment had run ahead of realized demand, the organization said.

A 1 percentage point slowdown in U.S. growth cuts other emerging-market growth by an estimated 0.6 percentage point, with the hit to investment about twice as large, the bank said. "A slowdown concentrated in AI would be material for East Asia because of the region's prominence in the AI supply chain," it said.

Bank funding is the broadest exposure. Foreign-currency-denominated liabilities of banks appeared significant in some countries, reaching 29.2% of GDP in Malaysia and 20.7% in the Philippines.

Taiwan's statistics bureau recently raised its 2026 growth forecast to 11% from 9.6% on AI demand, while warning in June that if the high-tech sector faces headwinds, the negative impact on the local economy could be bigger than expected.