East Asia and Pacific GDP growth to weaken amid China slowdown

Economic growth in the East Asia and Pacific (EAP) is projected to decelerate over the next two years as a deepening structural slowdown in China outweighs a pick-up in the rest of the region, the World Bank said.

- China growth weighed down by property sector downturn, soft labor market

- EAP growth to slow to 4.4% in 2026 from 4.8% in 2025

- Global growth to ease to 2.6% in 2026 from 2.7% in 2025

Regional growth is forecast to cool to 4.4% this year and 4.3% in 2027, down from an estimated 4.8% in 2025, the multinational institution said in its Global Economic Prospects report released on 13 January.

This regional cooling comes as the broader global economy has shown “notable resilience to heightened trade tensions and policy uncertainty,” it said.

Global growth is estimated to have averaged 2.7% in 2025, a figure that “capped a five-year global recovery from the 2020 recession unmatched in more than six decades”, the World Bank said.

However, global growth is projected to weaken to 2.6% this year before edging back to 2.7% in 2027 as supportive factors, such as frontloading of trade due to US tariffs and a surge in artificial intelligence spending, begin to fade.

“Global growth has unmistakably downshifted to a slower gear since the pandemic,” reaching a pace that is “insufficient to reduce extreme poverty and create jobs where they’re needed most”, World Bank senior vice president and chief economist Indermit Gill said.

In China, growth in 2025 slowed to an estimated 4.9%, which is 0.4 percentage point above the previous forecast, reflecting additional fiscal support and stronger-than-expected exports.

Growth in China for 2026 is expected to decelerate to 4.4% as “subdued consumer confidence, prolonged property sector downturn, and a softer labor market” weigh on consumption and investment.

Despite the slowdown, the 2026 forecast for China is 0.4 percentage point higher than previous projections due to further fiscal stimulus, resilient exports, and improved sentiment from “relatively more stable trade policy and partial tariff relief”.

Accommodative monetary and fiscal policies are expected to provide a partial offset for persistent pressure points for growth in China such as the slowdown in the property sector, but these are likely to be “constrained by rising debt levels”.

In 2027, China’s growth is projected to ease further to 4.2% as structural challenges, including declining productivity growth and demographic headwinds, continue to weigh on potential growth.

Excluding China, the East Asia and Pacific region is expected to post a slower GDP growth of 4.5% this year from 4.6% in 2025; before recovering to a higher rate of 4.7% in 2027, reflecting “delayed impact of higher trade barriers, with some offset from domestic policy support”, the World Bank said.

Indonesia and Malaysia have remained resilient as investments in the countries were “underpinned by state-led initiatives and foreign direct investment, respectively”, the bank said.

Industrial production increased in Malaysia, the Philippines, and Vietnam, “largely owing to artificial intelligence (AI)-driven demand for semiconductor exports”, it said.

Gill cautioned that the recent global resilience “did not stem from economic strength” but was instead “the result of hard-to-repeat maneuvers” such as firms scrambling to import goods before new tariffs took effect.

The outlook for regional trade hinges on future developments related to tariffs, though “bilateral trade agreements with the US are likely to induce changes to the pattern of trade in the region”, the World Bank said.

The bank added that “trade diversion and the relocation of production, as observed after the 2018 increases in US tariffs, could lead to a reconfiguration of supply chains”.

Risks to the outlook remain tilted to the downside due to the “potential for a renewed rise in trade tensions and associated uncertainty”, the bank warned.

Furthermore, a “challenging trade environment and sluggish global growth could weaken the pace of job growth in EAP”, the World Bank said.

On the upside, economies in the region could “reap productivity gains from artificial intelligence-related investment and adoption, on account of their greater digital readiness”, the bank said.

“Many EAP economies rank high in terms of AI preparedness, which suggests that they could benefit more from AI-induced productivity gains,” the World Bank added.

Source: ICIS