Growth is still strong in developing East Asia, but continues to moderate mainly due to weakening external demand, underscoring the need for governments to refocus on reforms to increase domestic demand and productivity, says the World Bank in its latest East Asia and Pacific Economic Update.

The report, issued biannually, projects that amid uncertainties in Europe and a global growth slowdown, real GDP in developing East Asia will increase by 8.2 percent in 2011 (4.7 percent excluding China) and by 7.8 percent in 2012.

Domestic demand in middle-income countries was the largest contributor to growth in the region, although it is easing driven by the normalisation of fiscal and monetary policy.

"Lower growth in Europe in the course of fiscal austerity and the banks needs to increase capital coverage would affect East Asia," says Bert Hofman, World Bank Chief Economist for the East Asia and Pacific Region.

Hofmann adds that less credit from European banks can also affect capital flows to East Asia, but high reserves and current account surpluses protect most countries in the region against the impact of possible renewed financial stress.

According to the report, the region's growth slow-down was more pronounced in industrial production. Exports of major regional industrial supply chains, especially electronics, have started to decline.

Demand for commodities and raw materials remained strong, helping resource-rich economies maintain high levels of export and GDP growth.

As demand weakens in developed countries, China's share in world imports has grown, making it an increasingly important source of global demand. A shift to more consumer goods imports in China is also benefiting the region's manufacturing exporters.