The World Bank says growth in East Asian economies will slow this year after a drop in global demand. But, the bank says inflation remains the biggest threat to the region's long-term economic stability. Daniel Schearf reports from Beijing.

The World Bank, in its semi-annual report released Tuesday, lowered its growth forecast for East Asia to 7.3 percent this year, excluding Japan.

The bank predicted low and middle income economies in East Asia will slow to 8.6 percent in 2008 from more than 10 percent last year, the lowest increase since 2002.

The slowdown is expected because of lower demand for imported goods in developed nations.

Louis Kuijs, a senior economist at the World Bank's Beijing office, says China, one of the world's largest exporters, will be affected but not severely damaged.

"When we look at the economies here in East Asia itself, especially China, we see a lot of growth and a lot of confidence in the domestic economy here in China," says Kuijs. "That is why we are not really downgrading our forecast for China's domestic economy, but we are downgrading the prospects for China's exports to those parts of the world that are facing a downturn."

The World Bank predicts the U.S. economy this year will grow by between 0.5 to 1.4 percent, down from 2.2 percent in 2007.

China's economic growth is expected to drop below 10 percent for the first time in five years.

The slow-down will likely be welcomed by Chinese officials who have been worried that double-digit growth would lead to overheating and unrestrained inflation.

The report says inflation from rising consumer and fuel prices is the biggest threat to East Asia's stable growth.

Kuijs says so far rising food and commodity prices in East Asia have not yet fueled general inflationary pressure. But, he says further price pressure is expected in the coming months, posing a challenge to East Asia's policy makers.