After growing at a robust 9.3 percent during calendar year 2010, activity in South Asia moderated in the first quarter of 2011, it said in its June 2011 edition of Global Economic Prospects.
Noting that the regional economic slowdown in 2011 mainly reflects a fall-off in activity in India, which represents about 80 percent of South Asia's GDP, the Bank said the slowdown stems from a moderation in domestic demand.
Elevated inflationary pressures have cut into disposable incomes and household spending and more restrictive monetary conditions have contributed to a dampening of investment activity, the GEP noted.
This slowdown partly also reflects macroeconomic policy tightening aimed at curbing stubbornly high price pressures and reducing large fiscal deficits, the Bank said.
The moderate compression of domestic demand has been partly offset by strong exports, as countries in South Asia have benefited from robust import demand in developing countries, recovering demand in high-income countries and resilient worker remittances inflows.
The Bank suggested that as they put the financial crisis behind them, developing countries need to focus on tackling country-specific challenges such as achieving balanced growth through structural reforms, coping with inflationary pressures, and dealing with high commodity prices.
In contrast, prospects for high-income countries and many of Europe's developing countries remain clouded by crisis-related problems such as high unemployment, household and banking-sector budget consolidation, and concerns over fiscal sustainability among other factors.
The World Bank projected that as developing countries reach full capacity, growth will slow from 7.3 percent in 2010 to around 6.3 percent each year from 2011-2013.
High-income countries will see growth slow from 2.7 percent in 2010 to 2.2 percent in 2011 before picking up to 2.7 percent and 2.6 percent in 2012 and 2013 respectively.
"Globally, GDP is expected to grow 3.2 percent in 2011 before edging up to 3.6 percent in 2012," said Justin Yifu Lin, the World Bank's Chief Economist and Senior Vice President for Development Economics.
"But further increases in already high oil and food prices could significantly curb economic growth and hurt the poor."
