The World Bank has raised its growth forecast for East Asia and the Pacific, driven by a surge in artificial intelligence-related exports, but warned that the region’s increasing dependence on the AI investment cycle leaves it exposed to a potentially painful global technology spending reversal.
The region’s economy is now expected to expand 4.5% in 2026, 0.3 percentage points higher than the World Bank’s April forecast, according to its latest report released Tuesday. Growth is projected to moderate to 4.4% in 2027 and 4.3% in 2028.
The East Asia and Pacific region covers 23 economies, including China, Vietnam, Indonesia, Malaysia and Thailand. Vietnam received the largest upgrade among the region’s major economies, with its 2026 growth forecast raised by 1.1 percentage point to 7.4%.
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The stronger outlook, however, masks a growing concentration of growth around AI-linked manufacturing, semiconductor demand and technology exports. The World Bank said trade growth excluding AI-related goods has been “weak or negative,” highlighting the extent to which the region’s current expansion depends on a narrow and rapidly growing segment of global demand.
AI-related products accounted for more than half of export growth in most economies across the region and more than 70% in Malaysia, the Philippines, Thailand and Vietnam.
China, Indonesia, Malaysia, the Philippines, Thailand and Vietnam exported $1.4 trillion worth of AI-related goods in the 12 months through April, according to the World Bank. The concentration is especially pronounced in semiconductor-producing economies. South Korea’s exports jumped 83.5% in September to a record $120.9 billion, with chips accounting for half of total shipments.
The World Bank also highlighted the extraordinary weight of semiconductor companies in South Korea’s equity market. Samsung Electronics and SK Hynix together represented 43% of the benchmark Kospi index’s value at the end of April, leaving a substantial portion of the market exposed to movements in the global semiconductor and AI investment cycle.
AI Investment Raises Growth, But Also Systemic Risks
The World Bank’s main concern is not that AI demand will disappear, but that the scale of investment may have moved ahead of realized demand.
AI-related capital expenditure has reached about 6% of U.S. GDP, roughly comparable with the peak of information-technology investment during the dot-com era. The current investment cycle, however, “has risen faster than either previous cycle and is still gaining speed,” the World Bank said.
That pace has raised comparisons with previous investment manias. The Bank for International Settlements warned in its annual economic report in June that the scale and speed of the AI boom resembled the dot-com frenzy of the 1990s and other financial “manias.”
The financing structure adds another layer of uncertainty. The World Bank estimates that $2.9 trillion of AI capital expenditure is planned between 2025 and 2028, with about $800 billion expected to come from private credit. AI-related lending accounted for 34% of private-credit activity in 2025, compared with an average of 18% over the previous five years. Private-credit portfolios have already experienced markdowns, outflows and defaults this year.
The World Bank warned that private-credit markets are “less visible, and have not been tested by a severe downturn.” That makes a reversal in AI investment potentially more disruptive than a conventional slowdown in technology demand. A significant portion of the capital supporting the expansion is being deployed through financing channels that are less transparent than traditional bank lending and public capital markets.
The risk has also increased as financial conditions tighten. The World Bank said the AI boom, which has been supported by abundant liquidity, could slow as major central banks raise interest 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 another increase this year.
A correction in AI spending would not necessarily bring the current AI investment cycle to an end. But the World Bank said investment “had run ahead of realized demand,” raising the possibility that companies could reduce capital spending if expected returns fail to materialize quickly enough.
But analysts have noted that the consequences could extend well beyond technology exporters for East Asia.
A one-percentage-point slowdown in U.S. economic growth is estimated to reduce growth in other emerging markets by 0.6 percentage points, while the effect on investment is roughly twice as large. The World Bank said a slowdown specifically concentrated in AI would be particularly significant for East Asia because of the region’s position within the global AI supply chain.
Banking System Adds Another Transmission Channel
The region’s exposure is not limited to exporters and equity markets. The World Bank identified bank funding as the broadest potential channel through which an AI-led global slowdown could spread.
Foreign-currency-denominated liabilities of banks are significant in some economies. They amounted to 29.2% of GDP in Malaysia and 20.7% in the Philippines, according to the report. That exposure could become more important if weaker global technology demand coincides with tighter international financial conditions, weaker currencies or reduced capital flows.
Taiwan offers another example of both the benefits and risks of the current AI cycle. Its statistics bureau recently raised its 2026 growth forecast to 11% from 9.6%, largely because of stronger AI demand. But Taiwan’s authorities have also acknowledged the concentration risk. In June, the statistics bureau warned that “if the high-tech sector faces headwinds, the negative impact on the local economy could be bigger than expected.”
The World Bank’s assessment therefore presents a dual picture of the region. AI has become a major source of export growth, investment and economic momentum, helping lift the near-term regional outlook. At the same time, the extraordinary concentration of trade, corporate investment, financial exposure, and equity-market value around the technology cycle has increased the potential cost of a reversal.