East Asia and Pacific Economic Update — April 2026

Industrial Policy in the Digital Age

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Growth in the East Asia and Pacific (EAP) region is slowing in 2026 due to external shocks. Longer-term growth requires reversing the productivity slowdown. Structural reforms have lost momentum, new jobs are in low-productivity services, and leading firms are falling behind the global digital frontier. The AI boom is spurring trade and investment, but EAP's ability to capture its benefits is constrained by gaps in connectivity and skills. Will the increasing recourse to industrial policy help? Download “Industrial Policy in the Digital Age” to learn more.

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Growth in developing East Asia and Pacific (EAP) remains above the global average but it is likely to slow down in 2026 and 2027. Growth in China, the region’s largest economy, is projected to decelerate from 5.0 percent in 2025 to 4.2 percent in 2026 and 4.3 percent in 2027. The rest of the region is likely to see growth dip from 4.9 percent in 2025 to 4.1 percent in 2026, before rebounding to 5.0 percent in 2027. Pacific Island Countries are expected to grow at 2.8 percent in 2026 and 3.0 percent in 2027.

Factors affecting growth

The impact of the energy shock on EAP will depend on country's energy import reliance, vulnerabilities and policy space

Energy shock Middle East Conflict Impact World Bank

Source: World Bank staff illustration.

Industrial policy in the digital age

Industrial policy is increasingly viewed by policymakers as a tool to open new development pathways. The report proposes an approach to industrial policy based on three pillars:

(1) Policies to create more productive jobs;

(2) Policies to boost productivity, expand economic opportunities, and strengthen resilience by harnessing technological change, advancing domestic reforms, and deepening international cooperation;

(3) Policies to support labor markets harness the productivity potential of new digital technologies.

(4) Policies to support firms leverage new technologies and help spur EAP firms productivity so they can catch up with global leaders.

(5) Policies to harness the potential of services to drive economy-wide growth and job creation

(6) Policies to face up to the major challenges of de-globalization, aging and climate change

(7) Policies to address new and old distortions in the areas of food, fuel and finance.

(8) Policies to encourage technology diffusion and adoption

(9) Creating opportunities for firms and ensuring inclusion to promote equitable growth;

(10) Trade reform, especially of still-protected services sectors—finance, transport, communications—to enhance firm productivity, avert pressures to protect other sectors, and equip people to take advantage of the digital opportunities whose emergence the pandemic is accelerating;

(11) Financial sector policies to support relief and recovery without undermining financial stability;

(12) Support for firms to prevent bankruptcies and unemployment, without unduly inhibiting the efficient reallocation of workers and resources;

(13) Social protection to help households smooth consumption and workers reintegrate as countries recover;

(14) Smart schooling to prevent long-term losses of human capital, especially for the poor;

(15) Smart containment of COVID-19, especially through non-pharmaceutical interventions like testing-tracing-isolation;

(16) Climate policy to build back better;

(17) Fiscal policy for relief, recovery, and growth;

(18) Vaccination to contain COVID-19.