Japan will bear the brunt of Asia's financial turmoil, but the economies of North America and Europe should be tough enough to resist an Asian flu, the OECD said yesterday.
OECD chief economist Mr Ignazio Visco said he expected Japanese growth in 1998 to be even weaker than a 1.7 per cent rise forecast in the OECD's twice-yearly Economic Outlook report, which was already partly out of date when released yesterday.
Mr Visco, who was formerly an economist at Italy's central bank, told Reuters after the release that the most recent developments in South Korea and Japan had altered the picture and that he now expected OECD-wide growth of around 2.7 per cent next year.
That forecast for the 29 OECD countries as a whole compared to a prediction of 2.9 per cent growth in a report which has lost some of its accuracy since going to the printers a few weeks ago because of the speed with which Asia's crisis has unfolded.
Mr Visco said events had been unfolding too fast for anything more than "educated guesses" about South Korea - which is the latest southeast Asian "tiger" to resort to an international financial rescue package after Thailand and Indonesia.
South Korean growth could be close to zero in 1998, he said. The OECD report also includes a simulation which showed that OECD growth could be 0.9 percent lower because of the crisis, with Japan, South Korea and other big OECD trading nations in the region suffering twice as badly as the United States or Europe.
Mr Visco said this simulation was largely hypothetical, and he predicted that the damage to GDP would be less in reality.
US growth had been so strong that the need was mounting for official interest rate rises and it now looked as if the task of heading off inflationary risks would instead by dealt with via lower demand in general due to the Asian troubles.
"Had this financial turmoil not taken place - and associated with that a domestic demand reduction in Asia - the economy in the United States would have been growing at a speed that required tightening of monetary conditions - that is increasing interest rates," Mr Visco told Reuters Financial Television.
"It is very likely that this increase (in US rates) will be less than what we would have anticipated," Mr Visco said.
"This implies that the slowdown needed in the United States will not be policy induced but will mostly come through a reduction in overall demand linked to the Asia crisis," he said.
The OECD report predicted 2.7 per cent growth next year with 2.8 per cent growth in the 15nation European Union and Mr Visco said he saw recent events in Asia knocking no more than a "few tenths of a percent" off these forecasts.
The largely theoretical simulation showed that Japan's GDP could be hit by as much as 1.4 percentage points, while the potential loss in US GDP was put at 0.7 per cent and the fall in European Union GDP at 0.8 per cent.
Mr Visco said this did not take account of "compensating" scenarios including a less tough interest rate stance in the United States.
Nonetheless, the report emerges in a week when Asian turmoil is dominating political as well as economic fronts.
