Growth across East Asia and the Pacific is losing momentum this year, weighed down by an energy shock, rising trade barriers, and persistent domestic vulnerabilities, but a surge in artificial intelligence-related trade and investment is offering a rare point of optimism, according to the World Bank’s latest regional economic report.

Key takeaways

• AI-related exports and investment surged across East Asia and the Pacific in 2025, with Malaysia, Thailand, and Viet Nam leading the way.
• Regional growth is forecast to slow to 4.2% in 2026, pressured by the Middle East energy shock, trade barriers, and weak domestic demand.
• Closing gaps in connectivity and skills is essential for the region to fully capture the productivity benefits of AI.

Regional growth is projected to slow to 4.2% in 2026, down from 5.0% in 2025, as the energy shock stemming from the Middle East conflict compounds the adverse impact of elevated trade barriers, global policy uncertainty, and domestic economic difficulties.

China, the region’s largest economy, is expected to decelerate from 5.0% growth in 2025 to 4.2% in 2026 and 4.3% in 2027, as weak domestic demand and property sector challenges persist and the global slowdown weighs on exports. The rest of the region is forecast to slow to 4.1% in 2026 before rebounding to 5.0% in 2027 as geopolitical tensions ease.

Against that difficult backdrop, the World Bank’s East Asia and Pacific Economic Update: Industrial Policy in the Digital Age identifies AI as a meaningful bright spot. The report highlights surging AI-related exports and investment in 2025, particularly in Malaysia, Thailand, and Viet Nam, as a notable positive development for the region.

Yet the Bank cautions that the full benefits of AI remain out of reach for much of the region. Adoption is constrained by gaps in connectivity and skills, with only 13 to 17% of multinational subsidiaries in China and Thailand currently using AI, roughly one third of the proportion seen in industrialised countries.

The report also examines how rising energy costs could deepen hardship for ordinary households. A sustained 50% increase in fuel prices could result in a 3 to 4% loss in income for households across the region, with the poor and small and medium enterprises identified as the most vulnerable.

On a longer-term strategy, the update argues that industrial policy, if carefully designed, can help unlock productivity gains. Targeted support for specific industries in the Republic of Korea, Malaysia, and, more recently, Viet Nam proved effective in part because those countries had strengthened their economic foundations, including infrastructure, education, and regulatory institutions, and had liberalised trade and investment. The Bank warns that similar efforts elsewhere have delivered weaker results where those foundations remain fragile.

World Bank Vice President for East Asia and the Pacific Carlos Felipe Jaramillo noted that while the region continues to outperform much of the world, sustaining growth will require confronting structural challenges and seizing the opportunities of the digital age to increase productivity and create more jobs.

World Bank Group Director of Research Aaditya Mattoo cautioned that present difficulties could increase economic distress and inhibit productivity growth, adding that measured support for people and firms could preserve jobs today while reviving stalled structural reforms could unleash growth tomorrow.

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