The United Nations has predicted that the financial crisis in Southeast Asia will have a minimal effect on the rest of the world.

The annual report by the UN economic and social affairs department said the Asian turbulence was not catastrophic and said that austerity measures were not the only answer.

"The net effect of the Southeast Asia crisis has been negative for the world economy as a whole but not drastically so," said Ian Kinniburgh, director of the department's policy analysis division, at a news conference.

But he said that austerity measures were being applied to all countries regardless of how their economies were faring.

"Governments should not be too restrictive because slowing down economic growth excessively is hardly a way to build up investor confidence," he said.

The UN report predicted the following:

• Growth in the world economy is expected to drop from an expected 3.2% for 1997 to 3% next year.

• For industrial states the rate is forecast at 2.5%.

• The eight major world economies are estimated at 2.25%, slowed by Japan, which is predicted to grow at 1.25% in 1998.

• The 1997 rate is expected to be 0.8% for Japan, far lower than forecast earlier and compared to 3.5% in 1996.

• The European Union is forecast at 3% in 1998

• The United States' is at 2.5% compared to an expected 3.7% in 1997.

• In the developing world, growth was forecast at almost 6% in 1997 but is expected to be 5% in 1998.

• Regional growth rates of Latin America and the Caribbean are forecast to slow to 3.5% as policies change to head off the loss of investor confidence.

• Brazil is forecast to grow only 1% but Mexico is expected to grow 5%.

• For Eastern Europe and the former Soviet Union, growth prospects are "still fragile but generally positive," with a prediction of 3% in 1998. The report said it appeared that for the first time this decade the Russian economy had grown if only slightly at 0.5% in 1997 and the trend is expected to continue in 1998, with a growth rate forecast at 1.5%.

• East Asian growth is expected to fall by 4% in 1998 because of recent financial turmoil - with Hong Kong at 4%, Indonesia at 3.5%, South Korea at 3%, Thailand at 2% but Taiwan at 5.5%.

• In India growth should rise to 6.5% and in China to 10%.

• Africa's Gross Domestic Product in 1997 rose 3%, less than the 4.4% in 1996 and 4% is forecast for 1998, much too low to ease poverty and unemployment.

The report suggested a more varied approach, saying one government might reallocate spending from wasteful activities while increasing it in other sectors.
 

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