The East Asian crisis and the resultant financial and economic turbulence during 1997-98 is expected to have a significant, adverse effect on global economic growth. The countries of East Asia, excluding Japan, which have been most affected by the crisis, have accounted for approximately half of the growth in world output since the early part of the decade.

The East Asian crisis is also expected to have a very significant effect on the pattern of global trade, for several reasons. First, sharp real-exchange-rate depreciation has meant that exports of the worst-afflicted countries have become significantly more competitive relative to those of other developing and industrial countries-at least to the extent that the anticipated jump in inflationary pressures in these countries does offset the real competitive gains. Second, in response to currency devaluation and slower growth, East Asian countries are expected to exploit their surplus productive capacity and be exceptionally aggressive in trying to export their way out of a recession. This surplus is the result of a rapid accumulation of capital during the 1990s. Estimates suggest that Asia accounted for about two-thirds of all capital investment in the world economy since 1990. Third, an expected slowdown in investment growth, especially of East Asian economies, would lead to a lower demand for imports.