East Asia Faces New Economic Shifts: Technology’s Role in Growth and Jobs

East Asia’s economy is growing, but at a slower rate than before the pandemic, with China’s declining growth contributing significantly to this slowdown. The World Bank’s October 2024 Economic Update highlights how technological advancements, particularly automation and AI, are reshaping the region's labor markets. While creating new opportunities for skilled workers, these technologies are also displacing low-skilled jobs, contributing to growing informal employment. To adapt, the region must invest in education, technical skills, and social insurance for informal workers while implementing necessary structural reforms.

Economic Growth and Challenges in East Asia

The East Asia and Pacific (EAP) region has long been a beacon of economic growth, consistently outperforming many parts of the world. According to the World Bank’s East Asia and the Pacific Economic Update, October 2024: Jobs and Technology, the region is expected to grow by 4.8% in 2024. However, despite this strong performance, the growth rate is slower than pre-pandemic levels. By 2025, the region’s growth is projected to drop to 4.4%, largely driven by a deceleration in China’s economy.

China, once the key engine behind EAP’s economic dynamism, is slowing down. The combination of persistent challenges such as an aging population, a weakened property market, and growing global tensions has affected its ability to sustain the same level of economic influence on its neighbors. These challenges reflect a shift in the growth dynamics of the region, which will need to rely less on external trade with China and more on domestic drivers to ensure sustainable growth.

For countries across the region, such as Vietnam, Malaysia, and Indonesia, this means pursuing long-delayed structural reforms and fostering innovation to drive economic performance. Without these reforms, the spillover benefits that once flowed freely from China’s rapid expansion could continue to shrink.

Technology Disrupts Traditional Labor Markets

One of the most profound influences on the region’s economy has been the rapid advancement of technology, especially automation and artificial intelligence (AI). The rise of robotics, digital platforms, and broader digitalization is transforming job markets, particularly in industries like manufacturing, electronics, and automotive. While these technologies boost firm productivity, they also bring significant shifts in employment patterns.

Routine manual jobs, once dominant in many EAP countries, are increasingly at risk of displacement by robots. Low-skilled workers, especially those engaged in repetitive tasks, are more vulnerable to losing their jobs, while demand for higher-skilled workers has surged. The report highlights that automation is creating more opportunities for skilled workers in non-routine manual and cognitive jobs, such as engineers, managers, and IT specialists.

However, the rapid adoption of robotics comes with a downside. As robots take over routine jobs, the informal labor market has grown in many countries, absorbing displaced workers who can no longer find formal employment. This trend is seen across countries like Indonesia, Malaysia, and Vietnam, where low-skilled workers are often left to navigate a less stable, informal economy.

The Impact of AI and the Skills Gap

AI’s influence in the region is growing but differs significantly from its impact in more advanced economies. While robots are displacing manual workers, AI is affecting more cognitive-based roles, particularly in industries that involve decision-making and processing tasks. Workers in sectors like customer service, clerical jobs, and some administrative roles are increasingly at risk.

Interestingly, the report notes that despite the advancements in AI, many countries in the EAP region are less exposed to its labor-displacing effects compared to advanced economies. This is due to the region's higher concentration of physical and manual jobs. However, as industries evolve, EAP economies will need to be proactive in preparing their workforce to deal with the coming wave of AI-related disruptions.

A major challenge is the skills gap. The region, particularly in developing economies like Cambodia and Laos, has a relatively low percentage of workers with advanced technical and digital skills. The shortage of STEM (Science, Technology, Engineering, and Mathematics) graduates is a key issue. To remain competitive and mitigate the effects of technology on employment, the report stresses the need for significant investments in education, digital literacy, and technical training.

A Call for Policy Reforms

For East Asia and the Pacific to harness the benefits of technological change, the World Bank report recommends several key reforms. Governments need to focus on enhancing labor mobility, reducing regulatory barriers, and encouraging innovation. Additionally, policies that protect the growing number of informal workers, particularly through social insurance schemes, are essential to cushion the impact of job displacement.

Technology should not be seen solely as a disruptor but as a powerful tool for economic growth. The challenge for EAP countries is to strike a balance between leveraging technology to boost productivity while ensuring that workers are equipped with the necessary skills to thrive in an increasingly automated world.