International Slowdown Poses New Challenges to Economic Policymakers

The economic crisis in Asia has resulted in a markedly more severed recession in those countries most affected than had been expected in the spring of 1998. Japan slid into a state of deflation and is engulfed in the deepest recession in the post-war period (1998 real GDP –2.5 percent); this development is the result of its close trade links to Asia and the weakness of its domestic demand, which suffers from the pessimism prevalent among households and investors.