OECD pessimistic in light of Asian turmoil

OECD pessimistic in light of Asian turmoil

PARIS (Reuters): The OECD, in a key economic forecast, predicts that the current Asian markets turmoil could cut growth in the world's major developed economies by as much as one percentage point.

It said Japan's economy is stuck in a rut, and few could tell reliably from one day to the next what is happening to its beleaguered Asian neighbors.

The Organization for Economic Cooperation and Development, in a report intended for publication on Dec. 17, said the crisis which has snowballed since Thailand's economy ran adrift in July was hurting Asia, but the outlook remained bright for the United States and Europe.

The OECD has agreed to early release of its overview report following breach of the publication embargo by another news organization. Individual country reports and tables remain embargoed.

The Paris-based agency, whose membership spans 29 countries, said the troubles in southeast Asia could potentially knock one percentage point off OECD growth, with Japan and others in the region bearing twice as much of the pain as the United States.

In its twice-yearly Economic Outlook, the organization cut its Japanese growth forecast for the second time in a month, putting 1997 growth at around 0.5 percent, a far cry from the 2.3 percent it predicted as recently as June.

Japan's woes were due as much to internal difficulties as to any domino impact from the wider crisis in Asian financial markets and economies.

It also said gross domestic product in the world's second largest economy was likely to grow by just 1.7 percent in 1998, down from a forecast of 2.9 percent GDP growth in Japan which the OECD made in its previous Economic Outlook six months ago.

And it acknowledged that things were changing so fast amid the financial turmoil elsewhere in Asia that its forecasts for South Korea, the latest Asian "tiger" to require international rescue after Thailand and Indonesia, were no longer reliable.

South Korea, which has just had to resort to a $57 billion rescue arranged by the International Monetary Fund yet has still failed to shake the investor panic which is strangling its economy, is the most recent country to join the OECD.

Despite this, the Paris-based OECD said that the United States could count on healthy 2.7 percent growth in 1998 and that the outlook was improving in the 15-nation European Union, with EU growth seen at 2.8 percent in each of the next two years.

Germany should see a rise of 3.0 percent in GDP next year, France a rise of 2.9 percent, Italy 2.1 percent and Britain 2.2 percent, says the OECD report, which is based on information gathered up until mid-November.

EU unemployment, however, looks set to remain "very high", above 10 percent, the report said, adding there was a need to tackle structural unemployment.

U.S. unemployment, which has recently dropped to its lowest level in nearly a quarter of a century, could start creeping up again as the pace of economic expansion slows, but this was likely to lead to a "mild reversal", it said.

Despite the relatively upbeat picture of 2.9 percent growth for the entire OECD, the organization said it had carried out a simulation exercise which showed the Asia crisis could knock close to one percentage point off GDP in 1998.

The OECD, which said the simulation exercise should be read with great caution, estimated the potential GDP loss would be far bigger in Japan and other countries with greater trade ties in southeast Asia than on the United States or European Union.

While the fallout could knock 1.4 percentage points off Japanese growth in 1998, the simulation showed U.S. growth hit to the tune of 0.7 points and that in the EU down by 0.8 points.