The outbreak of Severe Acute Respiratory Syndrome, or SARS, is having a negative impact on Asia's economy, the World Bank says. The institution has revised its growth forecast downward this year.

The World Bank has cut by one percent its yearly growth forecast for Asia, saying it expects growth to reach only five percent, mainly due to the effects of Severe Acute Respiratory Syndrome, but also the war in Iraq and a global electronics slump.

In a report released Thursday, the bank says damage to tourism and retailing will knock 0.3 percent off east Asian growth, but it predicts a rebound next year.

The World Bank warns that SARS is the region's most pressing concern. The bank's economists warn that the viral disease could worsen economic conditions beyond its current predictions.

Economist Pamela Wong of MMS International in Singapore says the situation with SARS is unprecedented. "Consumer sentiment is very, very low at the moment. And with that, countries that depend a lot on domestic consumption, like Korea or Singapore, they're going to be a lot more affected by it," she said. "Historically speaking, no, we do not have any benchmark for it. "

Despite its central place in the SARS outbreak, the bank's economists say China's robust economy and domestic demand will partially insulate export-driven Asian nations.

While China's economy is forecast to expand at a rate of nearly 7.75 percent this year and next, the picture is not so rosy for Hong Kong. Economic growth could be cut in half to two percent before recovering to four percent in 2004. On a bright note, the World Bank's economists say the winding down of conflict in Iraq could lead to a sustained reconstruction boom there, bringing valuable opportunities to east Asian businesses. The bank says easing oil prices should also help.

The World Bank report calls for cooperation to overcome the challenges Asia is facing and to build increasingly interlocked economies in the region.