Bangkok - Battered by the crisis in developed economies, East Asian economic growth is expected to drop to 6 per cent in 2009, down from 6.9 per cent last year and 9.0 per cent in 2007, the United Nations' World Economic Situation Prospects report predicted Thursday.

In South Asia, the UN's WESP report is forecasting 6.4 per cent gross domestic product (GDP) growth in 2009 compared with 7.0 per cent last year.

South Asia faces a serious problem with outflows of foreign exchange, it warned.

During the first two weeks of October last year, foreign exchange reserves fell by more than 17 billion dollars and in Pakistan, during the same period, foreign exchange reserves fell from 16.5 billion dollars to 7 billion dollars.

East Asian countries also face the prospect of declining foreign exchange reserves as their exports are affected by the financial crisis and recessions in major markets - the US, Europe and Japan.

"There is no such thing as decoupling. There is growing evidence that the economies in the region will be hard hit," said Raj Kumar, a senior advisor for the report's Asia-Pacific section.

Already in 2008, East Asia's export-oriented economies showed signs of slowing.

According to the UN report, last year China's gross domestic product (GDP) growth dropped from 11.9 per cent in 2007 to 9.1 per cent in 2008, while the economies of Cambodia, the Philippines and Singapore - all highly dependent of exports of manufactured good to industrialised countries - all saw their GDP growth decline by 3 per cent last year.

"In contrast, record high prices of export commodities, including rice, palm oil and energy, in the first half of 2008 allowed countries such as Thailand, Indonesia and, to a lesser extent, Malaysia, to sustain growth rates in 2008 at a level similar to those in 2007," said a summary of the report.

Commodity prices, however, have since started to fall and offer little hope for optimism in 2009.

In fact, the UN concludes that there is little hope for optimism from any sector or country this year.

"Today, one of the main problems is that we do not have any visible engine of growth," said Kumar.

He and other authors of the report have urged East Asian economies to use the downturn to push through economic and financial reforms.

"When times are good nobody wants to change," said Kumar. "Now is the right time."

For instance, he urged the Association of South-East Asian Nations and its three main Asian partners - China, Japan and South Korea - to push through the "Chiang Mai Initiative," an effort to form an Asian equivalent to the IMF, at the forthcoming ASEAN-Plus 3 meeting in April, in Thailand.

The UN is also urging the region to lower its trade barriers to one another and push through economic stimulus packages as means of spurring domestic and regional growth. (dpa)