The World Bank's latest report indicates that the East Asia and Pacific (EAP) economy, which includes 23 countries such as China, Vietnam, and Indonesia, is expected to grow by 4.5% this year, an increase of 0.3 percentage points from earlier projections. Vietnam stands out with a significant upgrade of 1.1 percentage points to a growth forecast of 7.4%.
However, the report highlights a concerning dependency on AI-related manufacturing and exports, which have driven over half of the region's export growth. For instance, AI-related goods accounted for more than 70% of export growth in Malaysia, the Philippines, Thailand, and Vietnam. The region collectively exported $1.4 trillion in AI-related goods in the year leading up to April.
The report also draws parallels between the current AI boom and the dot-com bubble of the late 1990s, noting that AI-related capital expenditure has surged to about 6% of U.S. GDP, raising concerns about sustainability. The World Bank warns that a slowdown in U.S. growth could significantly impact emerging markets, particularly those in East Asia heavily involved in the AI supply chain.
Additionally, the tightening of financial conditions due to rising interest rates from major central banks could further challenge the AI-driven growth, as private credit markets, which are increasingly funding AI investments, remain opaque and untested in downturns