Academic journal article National Institute Economic Review

The World Economy

Academic journal article National Institute Economic Review

The World Economy

Article excerpt

* The Asia crisis will cut world trade growth by over a third in 1998.

* The Japanese economy will contract by 1 per cent this year, prolonging the slump in the worst affected parts of South-East Asia.

* A strong monetary stimulus and a restoration of confidence in the banking system are required to stimulate demand in Japan.

* The risk of a Chinese devaluation has risen.

* The EU will be the strongest performing region in the OECD in 1999 with growth of just over 2.5 per cent.

* US consumer price inflation will rise sharply in 1999.

The Asia crisis has shown no sign of abating this year. Our calculations show that the trade turnaround with the Far East has already reduced GDP growth in developed economies by 0.5 per cent. As a result world trade growth will fall sharply to 6 per cent in 1998.

The Japanese economic outlook has deteriorated markedly in the last quarter. As a result we are now expecting GDP to fall by almost 1 per cent in 1998. This in turn is blighting the recovery prospects for the rest of Asia and raising the risk of further disruption through a Chinese devaluation. The Chinese yuan is now less competitive than it was before the devaluation of 1994.

The Japanese government's fiscal package should shore up the economy when it is finally implemented later this year but will not have long-lasting effects. …

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