The World Bank expects China’s economic growth to weaken further in 2025, despite a temporary boost from recent stimulus measures. This trend is likely to exert additional pressure on regional economies, particularly in East Asia and the Pacific, according to the institution’s semi-annual economic outlook report released this week.
China’s expansion is projected to fall to 4.3% in 2025, down from an estimated 4.8% in 2024. This reduction is expected to have significant ripple effects across the region, which includes countries like Indonesia, Australia, and South Korea. Growth across East Asia and the Pacific is also forecasted to decelerate to 4.4% in 2025 from 4.8% this year.
“For three decades, China’s growth has spilled over beneficially to its neighbors, but the size of that impetus is now diminishing,” the World Bank warned in its report. The growth trajectory of China has long been a crucial engine for economies in the region, with countries benefiting from increased trade, investment, and demand for commodities. However, the recent projections suggest that these positive spillovers may be decreasing, putting more pressure on these economies to find alternative growth drivers.
Despite recent efforts by Chinese officials to prop up the economy — including a series of monetary policy stimulus measures such as interest rate cuts — the World Bank suggests that such interventions may provide only short-term relief. The report emphasized the need for deeper structural reforms to sustain longer-term growth. “Recently signaled fiscal support may lift short-term growth but longer-term growth will depend on deeper structural reforms,” the World Bank said.
China’s economic challenges have been building over the past few years, driven by several factors, including sluggish consumer spending and persistent instability in the property market. Earlier this year, Chinese officials set an ambitious target of 5% growth for 2024, but by August, it became increasingly apparent that this goal was becoming difficult to achieve. The country’s slowing recovery from the COVID-19 pandemic has compounded these issues, leaving policymakers with limited options to kickstart growth.
In response to this economic stagnation, Beijing implemented a range of stimulus measures in late September, primarily focusing on monetary policy. These included cutting interest rates and providing liquidity support to financial institutions. The hope was to revive consumer spending, restore investor confidence, and breathe new life into the struggling property sector. Although these efforts may provide a temporary lift, the World Bank’s report suggests they are unlikely to reverse the longer-term slowdown.
According to the World Bank’s projections, China’s growth in 2024 will hover around 4.8%, in line with most forecasts. However, the 2025 outlook is more pessimistic, with growth expected to drop to 4.3%, slightly below the median forecast of 4.5%.
The slowdown in China’s economic engine is set to have far-reaching implications for other economies in the East Asia and Pacific region. Countries such as Indonesia, Australia, South Korea, and Vietnam have relied heavily on China’s growth for their own economic success, particularly through trade and investment.
With China’s growth tapering off, the World Bank expects regional growth to slow as well, from 4.8% in 2024 to 4.4% in 2025. This slowdown is expected to affect economies in varying ways depending on their dependence on China as a trading partner.
For instance, Indonesia, which is a significant exporter of commodities to China, could face reduced demand for raw materials such as coal and palm oil. Australia, heavily dependent on China for its exports of iron ore and other minerals, may also feel the pinch. Meanwhile, South Korea, whose economy is closely tied to global supply chains and exports of electronics and machinery, may experience reduced demand from China’s manufacturing sector.
The World Bank also noted that US-China trade tensions, which have been ongoing for several years, could further complicate the region’s economic outlook. While some countries, like Vietnam, have benefited from the shift in trade flows as companies seek to avoid tariffs and trade restrictions, the broader impact has been mixed. “New evidence suggests that economies may be increasingly limited to playing a ‘one-way connector’ role as new, more stringent rules-of-origin on imports and export restrictions are imposed,” the World Bank said.
The shift in trade and investment flows across the region has been largely influenced by the ongoing trade war between the US and China, which has led companies to diversify their supply chains. Countries like Vietnam have emerged as winners in this realignment, positioning themselves as alternative hubs for manufacturing and assembly. However, this dynamic has also exposed vulnerabilities, as new trade restrictions, rules of origin, and tariffs complicate the flow of goods and capital.
Vietnam has seen an influx of foreign direct investment (FDI) as companies look for alternative locations to avoid the geopolitical tensions between the US and China. Many multinational corporations have moved production facilities to Vietnam, particularly in the technology and apparel sectors. However, the World Bank’s report suggests that this shift may be reaching its limits, as countries in the region are increasingly restricted to playing a limited role in global supply chains.
In particular, the report highlights the emergence of stricter rules-of-origin requirements, which dictate the percentage of a product’s content that must be sourced locally to qualify for tariff exemptions. These new regulations could make it harder for countries in the region to benefit from free trade agreements, as they may struggle to meet the necessary requirements. As a result, the benefits of trade realignment may be smaller than initially anticipated.
Another critical aspect of the World Bank’s report is its examination of how new technologies, such as industrial robots and artificial intelligence (AI), are impacting labor markets across Asia. While automation and AI are transforming industries globally, their effects on labor markets in East Asia and the Pacific are expected to differ significantly from those in advanced economies.
The report noted that because manual task work dominates many sectors in the region, a smaller share of jobs is at risk of being displaced by AI and automation compared to advanced economies. In more developed nations, sectors such as finance, healthcare, and customer service, which rely heavily on cognitive tasks, are more vulnerable to AI-driven disruption. In contrast, the region’s labor markets, which rely on manufacturing and low-skill service work, are less exposed to automation.
However, this also means that the region is less well positioned to benefit from the productivity gains associated with AI and automation. In advanced economies, AI has the potential to drive significant improvements in efficiency and output, leading to higher growth rates. But in East Asia and the Pacific, where the labor force remains largely focused on manual tasks, the productivity benefits may be smaller.
This could create a “double-edged sword” scenario, where countries in the region are spared from the worst impacts of automation but also miss out on the economic gains associated with technological innovation. The World Bank’s report emphasized the need for governments in the region to invest in education and skills training to prepare workers for the jobs of the future. Without such investments, the region risks falling behind in the global race for technological advancement.
Given the mounting challenges, the World Bank’s report underscores the need for structural reforms to support sustainable long-term growth in China and across the East Asia and Pacific region. In China’s case, deeper reforms could include measures to address the imbalances in the property market, improve labor market flexibility, and strengthen the social safety net to boost consumer confidence.
For other countries in the region, reforms might focus on diversifying economies away from an overreliance on exports to China, improving domestic infrastructure, and fostering innovation. Governments will also need to address the challenges posed by climate change, which is becoming an increasingly urgent issue for the region. Many countries in East Asia and the Pacific are highly vulnerable to the impacts of climate change, such as rising sea levels, more frequent natural disasters, and disruptions to agriculture.
The World Bank highlighted the importance of regional cooperation in addressing these challenges. By working together, countries in East Asia and the Pacific can share knowledge, coordinate policy responses, and strengthen their resilience to global economic shocks.
