VINACHEM

Economic growth in the East Asia and Pacific (EAP) region is projected to slow from 5% in 2024 to 4.5% in 2025 on escalating global trade tensions and related increases in policy uncertainty, the World Bank said on 10 June.

• Trade openness exposes EAP economies to policy shifts
• China’s growth outlook unchanged at 4.5%; projected to slow through 2027
• Global 2025 growth cut to 2.3%; slowest since 2008
• The global lender had earlier in January projected a 4.6% growth for the EAP region’s economy.

“Due to their high trade openness, EAP economies are more exposed to trade policy shifts,” the World Bank said in its June Global Economic Prospects report.

“The downgrade reflects the impact of higher tariffs on growth, which is expected to be partly offset by policy support measures in EAP economies, notably China.”

CHINA’S GROWTH TO SLOW

China’s growth is expected to decelerate to 4.5% in 2025, unchanged with the prior forecast made in January, as “fiscal support [is] assumed to offset the impact of trade tensions with the US – China’s largest market for exports,” the World Bank said.

China’s economy expanded by 5% in 2024.

A soft labor market and subdued property sector in China are expected to weigh on consumption, though cushioned by fiscal stimulus.

China’s growth is forecast at 4% in 2026 and 3.9% in 2027, “in line with decelerating potential output growth, reflecting the effects of slowing productivity growth, an aging population, and high debt levels,” the World Bank said.

For the EAP region excluding China, growth is expected to ease to 4.2% this year, mainly due to trade tensions.

Increased trade policy uncertainty, reduced confidence, and spillovers from softer external demand in major advanced economies and China are likely to curtail exports and private investment in the region.

East Asian economies are particularly vulnerable to heightened uncertainty “because of their relatively larger exposure to trade and, therefore, higher shares of investment in GDP,” the World Bank said.

Economies with large export-oriented manufacturing sectors, including China, Malaysia, Thailand, and Vietnam, are particularly exposed.

While some economies will benefit from fiscal policy support – like social spending and public investment in Indonesia, Malaysia, Thailand, and Vietnam – “the full macroeconomic effects of higher trade barriers, which are hard to predict, could weigh on growth,” the World Bank cautioned.

Looking ahead, EAP growth is forecast to remain subdued at 4% in both 2026 and 2027 as the outlook for the region faces primarily downside risks, with persistent policy uncertainty and potential escalation of trade tensions being key concerns.

Other significant risks include tighter global financial conditions, spillovers from weaker growth in major economies, heightened geopolitical tensions, and natural disasters.

On the upside, a partial resolution of trade tensions and reduced policy uncertainty would likely boost regional growth prospects above the baseline.

More expansionary fiscal policy in China or major advanced economies could support faster-than-expected activity.

Additionally, surging digital investment and technological adoption could boost productivity growth, as “major economies in the region rank high in terms of readiness for AI adoption, which could underpin stronger-than-expected regional growth,” the World Bank added.

GLOBAL GROWTH FORECAST SLASHED

The global growth forecast for 2025 has been cut by four-tenths of a percentage point to 2.3%, marking the slowest rate of global growth since 2008, aside from outright global recessions.

By 2027, global GDP growth is expected to average just 2.5%, the slowest pace of any decade since the 1960s, the global lender warned.

Global trade is projected to expand by 1.8% in 2025, a notable slowdown from 3.4% in 2024 and significantly below the 5.9% average seen in the 2000s.

This forecast includes tariffs implemented through late May, such as the 10% US tariff on imports from most countries, but does not include tariff hikes announced by US President Donald Trump in April and later delayed until 9 July for negotiations.  – Source: ICIS