Asian crisis to push NZ into deficit

WELLINGTON: The Aslan contagion and commodity price falloffs will push the New Zealand economy into deficit over the next two years, after earlier forecasts predicted continuing growth and solid surpluses. the government said Tuesday.

The latest forecasts point to a bleak short-term outlook for a weakened economy, as the deficit and unemployment rate rise. But they also foreshadow a return to growth within a year.

Releasing the new projections. Finance Minister Bill Birch confirmed the economy is in recession and will shrink by half a per cent in the current financial year, down from the projected growth rate of 2.9 per cent.

While the economy is projected to contract this year, ending June 30,1990, it would bounce back to 2.9 per cent growth in 1999/00 and 4 per cent in 2000/01.

Birch said this would occur because the lower value of the currency would increase New Zealand s competitiveness.

Unemployment, currently at 7.7 per cent, is expected to continue rising and peak at 8.5 per cent by early next year.

After five years of budget surplus, Birch is now projecting a deficit of New Zealand dollars 700 million ($351 million) Instead of a New Zealand 2 billion ($1.1 billion) surplus next year.

Japanese cos to see fal1 in profits

TOKYO: Major Japanese companies will post an average 15 per cent fall in parent pretax profit this fiscal year due to stagnant domestic demand and the Asian economic crisis, a private think tank said Tuesday.

The Daiwa Institute of Research Ltd's assessment was considerably bleaker than its previous prediction of an average 8 per cent decline for the fiscal year ending March 31, 1999.

Profits are being battered as both households and companies cut back on spending because of Japan's severe credit crunch and the negative effects of asset deflation, Daiwa said.

The think tank, which is a research; arm of Daiwa Securities Co., also said the government's 16 trillion yen ($112 billion) stimulus plan was unlikely to lead to an immediate recovery in domestic demand.

Corporate profits will be further eroded by the economic woes of Southeast Asian countries. which will limit exports to the region. Daiwa said.

Daiwa had a brighter projection for the fiscal year ending March 31. 2000. saying corporate pretax profits are expected to rise 11 per cent, the first increase in three years.

Peugeot to invest

$37.5m in Cairo

CAIRO: The French car company Peugeot will invest 37.5 million dollar in building a factor^ to produce car engines in the free zone at Ismailiya. 120 kilometers (75 miles) northeast of Cairo.

The governor of Ismailiya. Abdel-Aziz SalameH, was quoted by the Al-Hayat newspaper on Sunday as saying the project will create 3.000 new Jobs.

A recent study by the Arab Organization for Industrial Development said there were 14 car manufacturing factories in Egypt with invested capital of 2J6 billion dollar and production capacity of 100.000 cars a year.

The study predicts that Egyptians will buy 110.000 a year by the year 2000.

Tokyo downgrades its economic assessment

TOKYO: The Japanese government downgraded its assessment of the economy Tuesday and the head of the country's chief economic agency warned Japan stands at the brink of entering a dangerous deflationary spiral.

Taichi Sakaiya. the director-general of Japan's Economic Planning Agency, said that while the economy has not yet fallen into a deflationary spiral in which prices sink lower and lower, "we are at the entrance of one."

"We must take actions to prevent the economy from being sucked in." he said at a regularly scheduled press conference.

Sakaiya's remarks followed the release of the Economic Planning Agency’s latest monthly report on the economy. which used the term "very severe" to describe the current situation — stronger language than the agency has used in the past.

The report cited a deterioration in key areas of the economy. noting sluggish housing starts and rising unemployment.

EPA chief Sakaiya said the Japanese economy could enter an "extremely dangerous" phase should the economic situation outside of Japan continue to worsen. But he added that Japan's hefty trade surplus and government stimulus spending will likely offset the negative impact of the global economy's woes. —AP reports