Asian crisis affects world growth

Asian crisis affects world growth

LONDON (AFP): The financial turmoil in East Asia will shave 0.5 percent from world economic growth in 1998, with continental Europe the most exposed region after Asia, U.S. investment bank Lehman Brothers forecast Friday.

The global economy will expand by 2.5 percent next year, according to the bank.

"Apart from Asia itself, the most exposed region is continental Europe, whose recovery is not yet fully established," the bank's global chief economist, John Llewellyn, said.

Any slowdown in growth would be unhelpful for Europe, which is grappling with record unemployment as it gears up for the launch of the common European currency in January 1999.

The bank predicts that growth in Europe in 1998 will be cut by 0.25-0.5 percentage points to 2.25-2.5 percent.

U.S. growth looks stronger in the future than Lehman Brothers anticipated at the start of the Asian crisis in July, but the upward revision it would have made is largely canceled out by the effects of the turmoil.

The United States is now expected to post growth of 2.5 percent in 1998. The U.S. economy grew by 3.3 percent in the third quarter of this year.

Lehman Brothers said growth in Japan, whose moribund economy is under pressure from domestic banking troubles and the weakness of major Japanese export markets in Southeast Asia, will more than halve to one percent, from 2. 5 percent previously forecast.

In Asia, excluding Japan and Australia, growth will be cut by four percentage points to 3.5 percent, the bank forecast.

The financial crisis in East Asia will have the effect of smothering domestic demand in those countries, and so hit exports to the region from Japan, Europe and the United States.

In addition, the sharp currency devaluations in the region will boost the international competitiveness of goods produced there, to the disadvantage of major Western industrial economies.