World Bank: Middle East conflict, tariffs, and AI reshape economic prospects in East Asia and the Pacific region

On the 8th, the World Bank (hereinafter referred to as "the World Bank") released its "East Asia and the Pacific Economic Semi Annual Report", stating that the economic growth rate of developing East Asia and the Pacific (EAP) regions is higher than the global average, but is expected to slow down: from 5.0% in 2025 to 4.2% in 2026, and then rebound to 4.4% in 2027. The World Bank stated that underlying factors include negative growth effects caused by rising energy prices.

The World Bank also stated that three external factors are reshaping the economic prospects of the region: the Middle East conflict, tariffs, and the artificial intelligence (AI) boom.

Middle East conflict and tariffs

The World Bank stated that the Middle East conflict has led to a sharp increase in energy prices. In the early stages of the conflict, the natural gas price index surged by 90% and crude oil prices rose by 30%, directly impacting energy importing economies such as Thailand and Pacific island countries, with oil imports accounting for 5% to 13% of their gross domestic product (GDP).

The World Bank stated that if crude oil prices rise by 30%, or $20 per barrel, the inflation rates in the Philippines and Thailand will increase by 0.62 and 0.67 percentage points, respectively, in six months. In addition, the tightening financing environment and the decrease in remittance income of migrant workers in the Gulf region may also have a negative impact on economic activities.

The World Bank also stated that the steady global economic growth momentum so far may be undermined, especially if the conflict continues or escalates, which will have an indirect impact on the region: for every 1 percentage point decline in the economic growth rate of the G7, it may lead to a decrease of about 0.6 percentage points in the output of developing economies in the East Asia Pacific region (EAP).

On the issue of tariffs, the World Bank stated that despite a recent ruling by the US Supreme Court, the export tariff levels of East Asian and Pacific economies to the US are still higher than those in 2024.

At the same time, the trade policy of the United States is exacerbating economic policy uncertainty, which not only suppresses investment but also promotes a shift in employment structure towards short-term and informal trends.

Aaditya Mattoo, head of the Development Research Department at the World Bank, told First Financial reporters that the US Supreme Court has already lifted the relevant tariffs, but after six months, "we still cannot determine what tariff policies will be implemented at that time

This is similar to the current two-week "ceasefire period" in the Middle East conflict, "but we also cannot predict what will happen next," he explained to reporters. "However, I believe that in many cases, what hinders investment is not the actual protection provided by tariffs themselves, but the overall atmosphere of uncertainty: because companies cannot predict the future direction, they often choose to remain inactive and postpone investment, which may have a huge negative impact on economic growth

As our research shows, this uncertainty not only has a negative impact on the total employment volume, but also changes the form of employment, manifested in the tendency of companies to adopt more flexible and informal employment contracts. Therefore, I believe that the impact of tariffs is not significant in absolute terms or in terms of GDP

AI exports become a regional highlight

The World Bank stated in the report that private consumption continues to provide support for economic growth in the region, but consumer confidence remains weak. In 2025, the export of AI related electronic products will become a major highlight, with shipments from Malaysia, the Philippines, Thailand, and Vietnam soaring significantly, while the export growth of other products will be slower. Affected by high policy uncertainty and recent shocks, the proportion of private investment to GDP in most economies in the region has not yet recovered to pre pandemic levels.

The World Bank further stated that the AI boom is driving global investment growth and reshaping technology supply chains. Among them, Malaysia and Vietnam are emerging as major exporters of artificial intelligence related products, with such exports accounting for one-third of their gross domestic product (GDP) by 2025.

In addition, economies throughout the East Asia Pacific region are also accelerating their investment in data centers.

The World Bank stated that in the short term, AI is expected to drive higher productivity growth; However, due to shortcomings in network connectivity, talent skills, and startup ecosystems, the popularization and promotion of AI in the East Asia Pacific region still face limitations.

Currently, only 13% to 17% of multinational corporations' subsidiaries in China and Thailand have adopted AI technology, while this proportion is as high as 37% in the United States. ”The World Bank stated.

The World Bank also cited South Korea as an example in the report, stating that its outstanding achievements in the semiconductor industry have provided many valuable experiences for all parties to learn from. In the first stage, the country successfully attracted foreign investment and technology by providing well-educated labor, improved infrastructure, legal certainty, and tax exemptions. In the second stage, the country effectively promoted the deep participation of domestic enterprises by providing low-cost financing. In the third stage, the country actively encouraged domestic enterprises to carry out innovative activities by supporting research and development (R&D) and coordinating cooperation among leading enterprises in the industry