A worker polishes newly-produced gas cylinders at a factory in Ruichang, China, on Wednesday.

Developing economies in Asia are forecast to grow at a 5.0% annual pace this year, helped by a strong US economy and surging demand for computer chips that power artificial intelligence, the Asian Development Bank said in a report on Wednesday.

The forecast was revised upward slightly from the ADB’s April estimate of 4.9% growth.

However, the regional lender warned of the potential threat of more protectionist measures, such as higher tariffs on exports from China, depending on the outcome of the U.S. presidential election.

The report highlighted several positive trends, including a rebound in exports from Asia of computer chips and other advanced electronics this year due to rapid adoption of artificial intelligence. It also noted that energy and food prices are moderating, though inflation remains painfully high in countries such as Pakistan, Laos and Myanmar.

The upturn in global demand for semiconductors and related electronics materials and components has helped drive stronger growth in Taiwan, Hong Kong, Singapore and South Korea, and to a lesser extent, the Philippines and Thailand, and that trend is expected to continue.

The report cited data from World Semiconductor Trade Statistics projecting that spending on memory chips, vital for AI applications, will expand 77% this year.

Other types of exports, especially autos from China and South Korea, also are growing quickly, it said.

The U.S. presidential election is a major source of uncertainty.

“The election could result in higher blanket tariffs by the US on all global imports, and a broad-based and steep increase in tariffs on all U.S. imports from the PRC (China),” the report said. “This would significantly escalate U.S.-PRC trade tensions, with potential negative spillovers to developing Asia through real and financial channels.”

Former President Donald Trump has pledged to stop US businesses from shipping jobs overseas and to take other countries’ jobs and factories away by relying heavily on sweeping tariffs. Vice President Kamala Harris has criticized Trump’s plan to impose large tariffs on most imported goods, which she says would severely raise the cost of goods.

Asia’s developing economies are also vulnerable to other US moves that might affect their currencies or the cost of borrowing on foreign loans, the report said.

China’s ailing property market remains a key risk and the report kept its forecasts for growth for the world’s second-largest economy at 4.8% in 2024 and 4.5% next year. The ADB’s chief economist, Albert Park, welcomed a flurry of fresh measures announced Tuesday by Beijing to cut borrowing costs and encourage more home purchases.

“It’s good to see. Certainly there’s room for monetary policy expansion,” he told reporters in a briefing before the report’s release. “Whether that will work remains to be seen.”

Among other positive developments, the report noted that energy inflation has returned to levels seen before the COVID-19 pandemic began in 2020. That alleviates pressures on some economies that depend heavily on imports of oil and other fuels, such as Sri Lanka, China and Japan.

Food inflation is still slightly higher, but falling. Rice prices fell by 12% to $589 per metric ton in late August after hitting a 16-year peak of $669 per metric ton in late January, the report said.

They are expected to fall further, as rice harvests are projected to hit record levels in the 2024-2025 growing year, and prices for wheat and maize also have declined. Crops are likely to benefit from the La Nina climate phenomenon, which could bring beneficial higher rainfall to some regions though it also could cause destructive flooding in others.

Meanwhile, Thailand’s exports rose for a second straight month in August, the commerce ministry said on Wednesday as it maintained its forecast of 1% to 2% growth this year despite the baht strengthening to 30-month highs against the U.S. dollar.

With demand picking up in key markets, further export growth was expected this year and it could even come in above forecast, although the baht’s rise would impact Q4 shipments, said Poonpong Naiyanapakorn, head of the ministry’s Trade Policy and Strategy Office.

Exports, a key driver of Southeast Asia’s second-largest economy, rose 7% in August from a year earlier, and followed July’s 15.2% rise, which was the fastest growth in 28 months. Economists in a Reuters poll had expected a rise of 5.8%

Imports rose 8.9% in August from a year earlier, compared with a forecast rise of 7.30% in the poll.

That led to a trade surplus of $0.26 billion in August, compared with a forecast deficit of $0.07 billion.

Agencies