It says that the growth in the industrialised countries will be only 1.7%, in 1999, down from its earlier forecast of 2.5%.

Europe is the only area still growing fast

And it predicts growth of only 2.3% in 2000, but only assuming that "the calm in financial markets persists."

And if central banks do not continue to lower interest rates in the face of more financial turmoil, its worst-case scenario predicts only 0.1% growth next year.

The OECD is significantly more pessimistic than the IMF, whose World Economic Forecast was published only one month ago.

But Europe is predicted to be an island of stability, with growth of over 2% next year, as even the USA slips into a slowdown. Britain, however, will suffer more, with only 0.8% growth predicted.

Risk of recession

OECD chief economist Ignazio Visco said that the probability of a global recession "is certainly much less than the 40-50% we had expected two months ago."

But the spread of the financial tumoil has meant that "confidence in many countries has begun to be adversely impacted by the extent and duration of the crisis, as well as diminishing prospects for any early turnaround."

And it warned that another major shock, such as a fall in world stock markets or a new crisis in Asia, could drive world growth rates down even further.

In that case, it said, economic growth for developed countries could fall to zero next year.

Even a further sharp fall in interest rates would only restore growth to an anemic 0.5% after such a shock.

Japan the key

Japan remains the key problem, with growth of only 0.2% forecast in 1999.

The OECD says the major risk in Japan remains the restructuring of the debt-laden banking sector, which could further impede recovery and spill over into other economies.

That could also cause weakness in the yen, putting presssure on China to devalue its currency and spawning another round of the Asian currency crisis.

The new fiscal stimulus package could help boost growth if it restores consumer confidence, but the best Japan could hope for was 0.7% growth next year.

Bleak prospects for developing countries

The prospects next year for the developing countries in Asia and Latin America appear bleak.

South Korea's economy is not expected to emerge from recession for two years, while Latin America is at best in a transition year.

Brazil, the region's largest economy, will shrink by 1.5% as it struggles to meet the budget cuts required as part of its IMF aid package.

But if that reform fails, there could be a sharp devaluation of the currency "which could reverse the price stability of recent years..and adversely affect financial institutions who have borrowed heavily in foreign currency."

Such a crisis could lead to a very severe risk of economic slowdown throughout Latin America.