WASHINGTON, Dec 14: Economic growth in South Asia is likely to slow gradually to a still robust 7.5 per cent in 2007 and 7 per cent in 2008, the World Bank reports.

Output in Pakistan is estimated to have slowed from 7.8 to 6.6 per cent, following a return to more normal agricultural production in the wake of a bumper harvest in 2005.

In its report on global economic prospects released this week, the bank underlines several factors for a slower growth in South Asia. These include weaker external demand, reflecting slower growth in the US in 2007, tighter domestic monetary and fiscal policies, and tighter international monetary conditions.

During 2006, the GDP in South Asia is estimated to have expanded at a very rapid 8.2 per cent.

India led the way an estimated 8.7 per cent, backed by non-agricultural growth in excess of 10 per cent.

In Bangladesh, growth rebounded to 6.7 per cent owing to stronger remittance inflows, vibrant services and manufacturing sector output and the waning impact on agricultural output of last year's floods.

Economic activity in Nepal slowed to 1.9 per cent because of the intensified conflict, a weather-related decline in agricultural production, and a decline in clothing exports.

In Sri Lanka, growth picked up to an estimated seven per cent, thanks to a good harvest, and post-tsunami recovery and reconstruction activity.

"This strong growth in the region is fuelled by economic reforms that have promoted private sector-led growth, sound macro management and greater integration with the global economy," said Shantayanan Devarajan, the World Bank chief economist for South Asia region.

"But the region faces several risks. Unless policymakers act early and decisively to control rising macroeconomic imbalances, inflation outturns will be higher, current account deficits larger, and the subsequent slowdown more pronounced," he said.

Mr Devarajan also said that widening inequality in the region would not only make growth less potent at reducing poverty but it might lead to new social conflicts or exacerbate existing ones.

China: In the report, the World Bank also gives a medium-term outlook for China's economy in a special section of regional economic prospects.

According to the report, GDP growth in China may slow from the current 10.4 per cent to 9.6 per cent in 2007 and 8.7 per cent in 2008.

Continued robust investment demand and a pickup in private consumption should maintain China's GDP growth at high rates.

China's export growth rates are projected to decelerate toward 14 per cent in 2008, lower than the estimated 20.3 per cent increase in the year 2006.

But the report warns that high investment rates and excess capacity in several sectors dominated by state-owned enterprises will leave open the possibility of a sharp decline in investment.

Rapid investment growth, and a surge in exports as new capacity came on stream, saw the Chinese economy expand by 10.7 per cent year-on-year in the first nine months of 2006.

Investment demand in China was particularly strong in the first half of 2006. China's efforts to contain investment via tighter monetary policy and sector-specific administrative measures have resulted in a modest slowing of GDP in the third quarter to a 10.4 per cent pace.

Robust expansion in credit and money supply, in part fuelled by strong balance of payment inflows, helped support acceleration in domestic demand, whose contribution to growth increased to an estimated 7.3 percentage points in 2006, up from 5.6 percentage points the year before.