EAST ASIA AND PACIFIC — The World Bank raised its growth forecast for the East Asia and Pacific region, driven largely by AI-related export demand. The institution forecasts the East Asia and Pacific economy will expand 4.5% in 2026.

AI-related goods accounted for more than half of export growth in most economies within the region. In Malaysia, the Philippines, Thailand, and Vietnam, these goods accounted for more than 70% of export growth. Export growth excluding AI-related goods has been weak or negative in most East Asia and Pacific economies.

AI-related capital expenditure in the United States is equal to about 6% of US GDP. This level matches the peak seen during the technology boom of the early 2000s. In 2025, the US contributed 62% of global AI-related capital expenditure, with the remaining 38% coming from Europe and other regions. Other data indicates the US accounted for 74% of global AI-related capital expenditure in 2025, with the remainder split among European and Asian economies. Primary sources: thedocs.worldbank.org, thedocs.worldbank.org (2), worldbank.org

In 2025, AI-related exports accounted for 58% of Malaysia's total exports, up from 42% in 2020, according to the Ministry of Trade. Malaysia's reliance on AI-related exports has increased significantly since 2020, when such exports accounted for only 18% of total exports, according to the Exchange Commission. Malaysia's goods exports totaled approximately $380 billion in 2025. Primary source: thedocs.worldbank.org

Investment in data centers in Malaysia is equivalent to 18% of the country's GDP. Malaysia accounts for an estimated 60% of proposed data-center projects in Southeast Asia. The Malaysia National Semiconductor Strategy targets mobilizing approximately $120 billion in investment by 2030.

The strategy also targets training 60,000 highly skilled engineers. It aims to develop at least 10 Malaysian semiconductor companies capable of competing in higher-value activities.

China has been Malaysia's largest trading partner for 17 consecutive years as of 2025. Bilateral trade between Malaysia and China reached nearly $200 billion in 2025. This figure represents a 53% increase from 2020 to 2025.

The US is Malaysia's second-largest export market after Singapore. Bilateral goods and services trade between Malaysia and the US reached approximately $95 billion in 2025. Malaysia's trade is equivalent to about 140% of its GDP. The economy grew at an average annual rate of 4.7% over the 25 years prior to 2025.

AI-related lending rose to 34% of private credit activity in 2025. The average share of AI-related lending in private credit activity was 18% over the five years prior to 2025. Foreign-currency-denominated bank liabilities equal 29.2% of GDP in Malaysia.

The World Bank has identified that 29.2% of Malaysia's foreign-currency-denominated bank liabilities are tied to AI-related sectors, according to its latest report on financial vulnerabilities. In the Philippines, foreign-currency-denominated bank liabilities equal 20.7% of GDP. Primary source: thedocs.worldbank.org

Timeline

On April 30, 2025, six economies in the East Asia and Pacific region shipped $1.4 trillion of AI-related hardware in the 12 months through April 2025. On September 30, 2025, South Korea's exports increased 83.5% in September 2025 to a record $120.9 billion. Also on September 30, 2025, semiconductor chips made up half of South Korea's exports in September 2025.

On that same date, Malaysia's goods exports totaled approximately $380 billion in 2025. On that date, bilateral trade between Malaysia and China reached nearly $200 billion in 2025.

What's New

The World Bank identified that in 2025, the region's growth was driven largely by AI-related exports, with more than half of export growth coming from AI-related goods in most economies, and over 70% in Malaysia, the Philippines, Thailand, and Vietnam. In 2025, Malaysia's export growth was driven by AI-related goods, with over 70% of its export growth attributed to such products, according to the World Bank. The East Asia and Pacific region's economic growth has historically been more volatile than other regions, with a standard deviation of GDP growth of 2.1 percentage points between 2000-2025, according to the World Bank. Primary sources: thedocs.worldbank.org, worldbank.org

The World Bank has previously raised its growth forecast for the East Asia and Pacific region in 2010 and 2014 due to similar export-driven booms, but those periods saw more diversified growth sources compared to the current AI-centric model. In 2025, the East Asia and Pacific region's growth was initially forecasted at 5.0%, but this was revised downward to 4.5% in October 2026, reflecting the impact of energy shocks and global uncertainty. The World Bank has warned that a 10% decline in AI-related investment could reduce Malaysia's 2026 GDP growth by as much as 1.2 percentage points, based on its latest economic modeling. Primary source: thedocs.worldbank.org

In 2025, the East Asia and Pacific region's growth was initially forecasted at 5.0%, but was later revised down to 4.5% in October 2026 due to energy shocks and global uncertainty. Primary source: thedocs.worldbank.org

Why It Matters

The concentration of export growth in AI-related goods creates specific vulnerabilities for the East Asia and Pacific region. While the World Bank raised its growth forecast, it noted that export growth excluding AI-related goods has been weak or negative in most economies. A 10% decline in AI-related investment could reduce Malaysia's 2026 GDP growth by as much as 1.2 percentage points. This risk is compounded by financial linkages, as 29.2% of Malaysia's foreign-currency-denominated bank liabilities are tied to AI-related sectors.

Historical patterns show that previous export-driven booms in 2010 and 2014 featured more diversified growth sources than the current AI-centric model. The region's economic growth has historically been more volatile than other regions, with a standard deviation of GDP growth of 2.1 percentage points between 2000 and 2025. The initial 2025 forecast of 5.0% was revised downward to 4.5% in October 2026 due to energy shocks and global uncertainty, illustrating the sensitivity of these projections to external factors.