After a sharp decline in late 2022, semiconductor exports from Asia’s main producers rebounded over 2023. While semiconductor exports ended 2023 close to their mid-2022 highs, other electrical machinery exports remained significantly below the peak levels reached during the COVID-19 pandemic. This resurgence in semiconductor exports was fueled by increased demand for microprocessors and memory chips, driven by the boom in artificial intelligence (AI). Advanced microprocessors handle AI training tasks, while memory chips store the vast datasets necessary for AI algorithms. Asian economies are differently specialized in the production of these microchips, which led to different export growth rates in 2023. While Taipei,China leads global semiconductor manufacturing, microprocessors and memory chips constitute only a small part of its overall production. On the other hand, the Republic of Korea (ROK) is highly specialized in these microchips, while other economies in East and Southeast Asia fall between these two polar cases. Looking ahead, while demand for advanced microchips is expected to remain strong, rising geopolitical tensions in East Asia and efforts to counterbalance the People’s Republic of China’s rising market share are prompting economies outside Asia to incentivize reshoring or nearshoring production. This may impact the ROK and Taipei,China, but it also presents opportunities for Southeast Asian economies, which may attract investments from large semiconductor manufacturers seeking to diversify their production bases.

Caucasus and Central Asia

Caucasus and Central Asia economies will slow after the boost from re-exports and Russian migrant inflows in 2023. Growth in the subregion is forecast to fall to 4.3% in 2024, down from 5.3% in 2023, bouncing back to 5.0% in 2025. In Kazakhstan, growth is expected to slow to 3.8% in 2024 as healthy consumption will be balanced by moderation in services and industry. The completion of the Tengiz oil field expansion next year will drive the acceleration to 5.3% growth in 2025. In Uzbekistan, growth is forecast to moderate to 5.5% in 2024 and 5.6% in 2025 from 6.0% in 2023, as services, agriculture, and domestic demand cool on persistent inflation and slower growth in household income. Growth in Armenia and Georgia will also moderate as the windfall impact from the Russian invasion of Ukraine fades. In Azerbaijan, growth will be 1.2% in 2024 and 1.6% in 2025 as services offset declining oil output and revenue.

East Asia

Growth in the PRC will moderate to 4.8% in 2024 and 4.5% in 2025 amid continued property sector weakness. Growth in services will moderate as the effect of the post-pandemic reopening fades. Domestic and external demand for low carbon technologies will remain strong, including electric vehicles, batteries, and renewables, but overcapacity in these sectors will dampen prices and cushion their positive impact on growth. Policy support will likely continue in 2024 for technology industries such as semiconductors and AI. Infrastructure investment and public projects will underpin construction and support private investment. Private consumption should continue recovering in 2024 as the labor market and household income improve, and youth unemployment is expected to start declining this year. However, real estate investment will continue to slow with sluggish housing demand and financing constraints for developers. This continues despite government efforts to stabilize the property market by easing access to financing and supporting affordable housing. Continued accommodative monetary policy and further fiscal stimulus could marginally raise growth.

High-income technology exporters are expected to benefit from the rebound in semiconductors. Growth in the Republic of Korea is forecast to be 2.2% in 2024 and 2.3% in 2025, up from 1.4% in 2023. Growth will be fueled by exports, driven by sustained demand for semiconductors globally and supported by expanding AI services and cloud-server business. The recovery, however, will be uneven as domestic demand will remain fragile amid the high interest rate environment. Rising demand for specialized AI semiconductor chips will drive growth in Taipei,China to 3.0% in 2024 and 2.7% in 2025, from 1.3% in 2023. In contrast, growth in Hong Kong, China will decelerate from 3.2% in 2023 to 2.8% this year and to 3.0% in 2025, mostly due to slowing growth in the PRC.

South Asia

South Asia remains the fastest growing subregion as domestic demand improves on moderating inflation in most economies. Growth in the subregion will continue to exceed the regional average, reaching 6.3% in 2024 and 6.6% in 2025. In India, growth is forecast to remain strong at 7.0% for fiscal year (FY) 2024 (ending on 31 March 2025), albeit slower than the 7.6% growth in FY2023, and is expected to accelerate to 7.2% in FY2025 as rising consumption complements continued investment growth. Services will remain the growth mainstay, with manufacturing expected to play a strong supporting role. In Bangladesh, garment exports will push growth up to 6.1% in FY2024 (ending on 30 June 2024) and 6.6% in FY2025. Private consumption is expected to rise as inflation eases, while public investment will increase due to large infrastructure projects in energy and railways. This will counter subdued public consumption from lower subsidy spending and continued austerity measures. Hydropower investment and the commissioning of a major hydropower plant will drive growth in Bhutan. In Maldives, tourism and construction will boost growth in 2024 and 2025. Growth in Nepal will pick up in FY2024 (ending in mid-July 2024) and FY2025 on rising domestic demand and hydroelectric output, and a continued recovery in tourism.

Pakistan and Sri Lanka should recover from last year’s growth contractions. In Pakistan, growth is forecast rising at 1.9% in FY2024 (ending on 30 June 2024) and 2.8% in FY2025, up from the 0.2% contraction last fiscal year. The shift back to positive growth will come from a recovery in both agriculture and industry. However, domestic demand will remain constrained by the surge in living costs and tight macroeconomic policies. In Sri Lanka, growth will rebound to 1.9% in 2024 and 2.5% in 2025 from the 2.3% contraction in 2023. This will be driven by rising output in services, resuming industrial projects, and continuous regulatory reform aimed at improving the business climate. Still, tax increases will dampen the recovery in private consumption and investment.

Southeast Asia

Growth in Southeast Asia should rise, driven by robust domestic demand and a continued recovery in tourism. The subregion is forecast to grow by 4.6% in 2024 and 4.7% in 2025, up from 4.1% in 2023. Indonesia is poised to maintain 5.0% growth in the next 2 years, supported by robust private consumption, public infrastructure spending, and gradually improving investment during the forecast horizon. On top of strong domestic demand, a turnaround in merchandise exports starting in mid-2024 will drive growth in Thailand (2.6% in 2024 and 3.0% in 2025), Viet Nam (6.0% in 2024 and 6.2% in 2025), the Philippines (6.0% in 2024 and 6.2% in 2025), and Malaysia (4.5% in 2024 and 4.6% in 2025). Tourism will support services growth, while industrial output will move in line with a recovery in exports and easing monetary policy.

The Pacific

Growth in the Pacific will slightly decline in 2024 and pick up in 2025. The subregion’s economy is projected to expand by 3.3% in 2024 before rising to 4.0% in 2025. In Papua New Guinea, the subregion’s largest economy, growth is projected to accelerate to 3.3% in 2024 and 4.6% in 2025, driven by increased mining activity with the reopening and rising output of major gold mines. This will offset slowing expansion in Fiji, the second-largest economy, from the fading tourism recovery. In the rest of the subregion, growth will be sustained by tourism and stimulus from public infrastructure projects.