Experts from the UN Economic Commission for Europe said the conflict was a "second hammer-blow" for the East European countries struggling to make the transition from communist planned economies to the free market.

Last year the financial crises in Asia and Russia made a deep impact on the region.

The UN experts say it will take at least $25bn to rebuild the region.

As a result, economic growth in Eastern Europe was half of what had been expected, only 2% during 1998.

The military conflict now has scared off the few remaining investors, interrupted the flow of exports and badly shaken business confidence.

Yves Berthelot, head of the Geneva-based UN agency, said: "This conflict, from an economic point of view, represents an external trade shock for the countries of the region, which are losing markets or cannot receive the commodities they have to use for their economies through the normal channel of the Danube."

The commission said the countries most at risk from recession were Slovenia, Croatia, Albania, Romania, Bulgaria, Hungary, the former Yugoslav republic of Macedonia and Yugoslavia itself.

Reconstruction costs

If the conflict does not end soon, and if the region's economies do not get massive aid for rebuilding, they will join Russia and other former Soviet republics who already are in recession.

To get a feeling for the size of the task ahead, Paul Rayment, the commission's head of economic analysis, pointed to the need for reconstruction after the war in Bosnia.

The World Bank has drawn up spending plans worth $5bn over three years for Bosnia.

Mr Rayment says that for Yugoslavia it would take "at least five times that".

The Balkans Committee, set up by the international financial institutions last month, has already said that at least $2bn in short-term aid to the Balkan countries was needed immediately, with up to $30bn later on.

Donor countries will be meeting in Berlin later this month to consider a future programme of aid.

Impact on European Union

The designated president of the European Commission, Romano Prodi, meanwhile told the European Parliament that the whole of Europe will feel the economic strains of the Kosovo crisis.

"The European economy is in the middle of a phase of slowing growth," he said.

Germany's new Finance Minister, Hans Eichel, had recently warned his colleagues at an EU summit that the war and the reconstruction of the Balkans would weigh heavily on European budgets.

He made particular reference to Italy and Greece, which suffered losses because of closed airports and railway routes.