The region is entering a phase of 'heightened uncertainty", the United Nations report said, with export-led countries to be hardest hit by the ongoing financial turmoil in the United States.

'In the worst case scenario of a recession in the US and a deeper depreciation of the dollar, the impact in much of the region would be harsh.

'Most vulnerable will be the exporters of high-technology products, such as electronics, to the US: Singapore, South Korea and Taiwan,' said the report outlining the economic and social situation for the region for 2008.

After a record GDP growth of 8.2 per cent in 2007, global factors including high oil and food prices prices would take a toll in the region, the report by the UN Economic and Social Commission for Asia and the Pacific (ESCAP) said.

Rich countries in the region including Japan, Australia and New Zealand will see growth drop to 1.6 per cent in 2008 from 2.0 per cent in 2007, it said.

But China and India's economies would continue chugging along, offering opportunities to other export-led economies.

India is expected to maintain growth at 9.0 per cent in 2008 while in China, government spending increases will spur domestic demand.

'China and India, the region's growth locomotives, are expected to grow at a robust pace, boosting growth in the region,' said ESCAP's deputy executive secretary Shigeru Mochida.

'So far the Asia Pacific region has been resilient - it is mainly due to the good and strong economic fundamentals,' he told reporters at the Bangkok launch of their report.

Maintaining these fundamentals by moderating inflation and keeping budget deficits and interest rates low was key to weathering turmoil in the world's largest economy, sparked by the housing crisis and credit crunch, he said.

Exporters would face a double whammy of a weakening dollar due to sharply lowered interest rates in the US, as well as slowing demand.

Inflation, meanwhile, is projected at 4.6 per cent in 2008 in developing nations, down from 5.1 per cent the previous year.

Soaring food prices a major concern
Soaring food prices were a major concern, UN officials said, while agriculture was in need of drastic reform, with government neglect of the sector helping keep 641 million people in the region in poverty.

'Something must be very wrong in the current approach to development if it leaves millions of people in extreme poverty, when so much prosperity has been generated in such a short time,' said Mr Mochida.

But even with the credit crunch casting a pall over export-led economies in the region, the financial turmoil is also throwing up opportunities.

'Interest in Asia-Pacific assets may increase because of the strong growth projections for the region,' the ESCAP report said.

In addition, sovereign wealth funds in the region are increasingly being tapped to help bolster weakened banks in the US and Europe.

'That shifting balance of financial power is also evident in the dramatic rise in the overseas investment of Asia-Pacific corporations,' it noted.

It also pointed out that the region's corporations, being 'cash rich and not highly leveraged' have been largely resilient to the US credit crunch. -- AFP