The World Bank reduced its growth forecast for East Asia and Pacific to 4.5% for 2025, down from earlier projections, citing persistent trade fragmentation and heightened geopolitical tensions that continue to weigh on the region’s economic recovery in its latest Economic Update for the region.
Growth in China, the region’s largest economy, is projected to slow to 4.5% in 2025 from an estimated 5.2% in 2024, as weak domestic demand and property sector challenges persist while global uncertainty dampens export growth.
Growth in the rest of the region is expected to moderate to 4.3% in 2025 before potentially rebounding to 4.8% in 2026 as global conditions stabilize and domestic reforms take effect.
“Growth in East Asia and Pacific continues to outperform much of the world, even in uncertain times,” said Carlos Felipe Jaramillo, World Bank Vice President for East Asia and Pacific. “Yet sustaining growth levels requires countries to confront structural challenges and seize the opportunity of the digital age to increase productivity and create more jobs.”
The downward revision reflects mounting pressures on regional economies as countries grapple with ongoing trade policy uncertainty, elevated borrowing costs, and persistent domestic challenges including weak productivity growth and limited job creation in high-value sectors.
Global Uncertainty Creates Headwinds
The impact of global tensions varies across the region depending on each country’s trade exposure, energy import dependence, and economic policy flexibility. Countries across the region are experiencing varying degrees of pressure from supply chain disruptions and commodity price volatility.
Recent geopolitical developments, including tensions in the Middle East, have contributed to energy market volatility that affects oil-importing nations in the region. These external shocks have emerged as key factors dampening growth prospects, adding to existing headwinds from trade fragmentation that have characterized the global environment in recent years.
The Philippines faces particular challenges, with growth expected to moderate as the country navigates external pressures alongside domestic policy adjustments. Vietnam and Thailand also show sensitivity to global trade disruptions given their integration into international supply chains.
Digital Transformation Offers Opportunities
Despite overall headwinds, the report identifies artificial intelligence-related trade and investment as a significant bright spot for the region’s medium-term prospects.
The analysis highlights surging AI-related exports and investment, especially in Malaysia, Thailand, and Vietnam. AI adoption could lead to higher productivity growth, but implementation across East Asia Pacific remains limited due to gaps in digital infrastructure, connectivity, and workforce skills.
Current AI adoption rates among businesses in the region lag behind those in advanced economies, with significant variation between countries based on their digital infrastructure development and regulatory frameworks. This digital divide underscores the region’s challenge in fully capitalizing on technological advances that could drive future growth.
Industrial Policy Lessons
The report’s special focus examined how industrial policy approaches could help regional economies boost growth and create higher-productivity employment opportunities.
The analysis finds that targeted support for specific industries succeeded in South Korea, Malaysia, and more recently Vietnam because these countries first strengthened their economic foundations—including infrastructure, education systems, and regulatory institutions—while maintaining open trade and investment policies.
However, similar industrial support measures in other countries have proven less effective where they attempted to overcome constraints from weak institutional foundations and persistent trade protection, particularly in services sectors.
Structural Reform Priorities
The East Asia Pacific region has historically served as a global growth engine, lifting hundreds of millions out of poverty through export-oriented development strategies. However, the region now confronts mounting structural challenges that require policy attention.
Productivity growth has decelerated across much of the region, with many firms falling behind global technology frontiers. Job creation has increasingly concentrated in lower-productivity services rather than the high-value manufacturing and technology sectors that historically drove rapid income growth.
Regional economies also face demographic transitions, environmental sustainability requirements, and the ongoing need for economic diversification beyond traditional export industries.
Policy Implications
The World Bank’s analysis emphasizes the importance of accelerating digital adoption while strengthening economic fundamentals to support sustainable growth.
“The region’s past resilience is remarkable, but present difficulties could increase economic stress and limit productivity gains,” the report notes. “Targeted support for workers and businesses could preserve employment while reviving stalled structural reforms could unlock future growth potential.”
Outlook Depends on Reform Implementation
The forecast assumes gradual stabilization in global conditions through 2026, allowing for modest recovery in regional growth trajectories. However, this outlook remains highly dependent on the extent to which countries implement productivity-enhancing reforms and navigate ongoing global uncertainties.
The report underscores urgency for regional economies to accelerate digital transformation, strengthen institutional capabilities, and pursue targeted reforms that can unlock private investment and innovation. With global economic volatility likely to persist, the region’s ability to maintain its growth leadership will depend on how effectively countries balance immediate challenges while positioning for longer-term competitiveness in emerging technology sectors.