The position of the United States as global economic and political superpower has been unchallenged since the mid-1990s. Deep structural changes are afoot, however, which suggest that the balance of global power could be about to shift.

The US economy is beset by major structural problems that cyclical recovery alone cannot solve. External imbalances in the form of massive and deepening trade and current account deficits have worsened over the course of the downturn.

The current account deficit has widened to more than 5 per cent of GDP and so the US has become increasingly reliant on foreign inflows. This trend relates in no small part to the Federal Reserve's strategy of slashing interest rates to shore up domestic (thus import) demand.

The federal budget position has deteriorated sharply - the second of the so-called "twin deficits". Massive tax cuts since George W. Bush took power have seen the budget surpluses built up under the Clinton administration vanish, and turn to deficit.

And it is not just Mr Bush's tax cuts that are to blame. Spending has played an equally large role, with costs escalating both domestically (social security, Medicare, prescription drug costs) and on military and security expenditure.

Two years on from September 11th, the cost of the "war on terror" has escalated beyond all expectations - the wars in Afghanistan and Iraq, the lengthy and messy process of rebuilding and stabilising the region, and continuing homeland/airport security requirements.

In the late 1990s investors bought into the idea of a productivity miracle or "new paradigm" of inflation-less growth in the US.

Even now, this idea still wins some sympathy among US commentators, looking at the 6.8 per cent productivity rise recorded in the second quarter of this year as proof that a solid corporate recovery is under way.

But productivity always expands rapidly at the start of an economic recovery, as output picks up while firms are still cutting costs and laying-off workers.

Critics would point to the continuing willingness of foreign investors to pour capital into the US economy, but a simple glance at the breakdown of capital inflows reveals that by far the majority in recent years have gone into the debt markets rather than for real investment purposes.

Then there is a contradiction in that treasury secretary John Snow is insisting that the Bush administration continues the strong dollar policy of the previous government, whereas his underlying commentary has clearly sought a devalued currency to help the US economy to rectify its imbalances.

As far as monetary policy goes, Fed chairman Alan Greenspan has lost his guru status. He knows only monetary policy, which has proved ineffective in getting the US economy out of the investment-led downturn. At 77 years of age, Greenspan is too stuck in his ways now. And he has done the Fed no favours in failing to groom a natural successor.

Thus, the US will be the losing economy in the new world economic order. US GDP growth is more likely to be 2.5 per cent over the next decade rather than the 3-4 per cent trend growth forecast. This rate of growth is unsustainable for a maturing economy.

There has been a lot of talk about another "jobless recovery" in the US, with the unemployment rate still above 6 per cent and probably closer to 8 per cent if one counts the discouraged and marginally-attached workers who have left the labour force over recent years.

Recent research from the New York Fed suggested that employment might take longer to pick up this time round because layoffs were permanent and more structural than cyclical - suggesting a slow employment recovery because it will require the creation of new jobs rather than merely recalling temporarily laid-off workers.

The risk is the continued lack of demand for workers will bring the recovery to a halt. A jobless recovery by its nature is unsustainable because US consumers will become more cautious and seek to rebuild the savings rate.

The current account deficit cannot be allowed to widen indefinitely and its financing over the medium term will require higher interest rates (to attract foreign capital) and/or a weaker dollar (to redress the terms of trade and reduce US consumers' insatiable appetite for imported goods).

The main point is that whether external balance is restored through higher interest rates, a weaker dollar, or both - the outcome will be weaker US GDP growth.

Europe too is at risk. The euro, as a freely traded currency, could risk extreme over-valuation on generalised dollar weakness, because pegs with many Asian and Latin American currencies, as well as Japan's careful management of the yen, mean the euro has to bear the brunt of adjustment.

The unwillingness of the European monetary authorities to take responsibility for foreign exchange management exacerbates this risk. Indeed, the lack of monetary leadership by the European Central Bank and the lack of political leadership in a disharmonious and increasingly diverse EU do not bode well for future growth prospects here either.

So who is going to win in the new world order? I suspect that it will be the Asian economies - China, South Korea and even to some extent Japan.

First, they are in the comfortable position of gaining competitive advantage and international market share from having undervalued currencies. The region's role in world trade is increasing at a phenomenal rate - the Asia-Pacific region generating one-quarter of global merchandise exports now.

China's share has grown from just 1 per cent in 1983 to over 4 per cent last year, and is putting heavy pressure on other economies in the region which are also heavily reliant on labour-intensive manufacturing exports. A second point worth noting is the strong capital account surpluses that characterise the Asian region, a sharp contrast to the US.

According to the IMF, south-east Asia ran a current account surplus of $246 billion in 2002, of which $113 billion came from Japan, $68 billion from Hong Kong, Singapore, South Korea and Taiwan, and $65 billion from China and India.

Behind these surpluses lie extremely high savings and investment rates. A further reason for optimism about the region is the ongoing strength of foreign direct investment inflows, particularly to China, which received $448 billion in 2002 out of $2,340 billion for the whole of south-east Asia.

These economies still have enormous catch-up growth potential and so will be able to grow without the "speed limit" restrictions of more mature economies like Europe and the US - in the form of overheating labour markets, balance of payment difficulties, etc. Even in 2002 China's GDP per capita was just $4,400, suggesting decades of rapid growth potential. All this supports the view that the Far East can once again realise the high growth potential derailed in the 1990s.

The investment implications could be remarkable. Allocations to this region could potentially climb to a combined 25 per cent of Irish pension funds in two to three years' time compared to just 6-7 per cent now. Time will prove that the period 1997 to 2000, when the US led the world in new investment, productivity and equity returns, will increasingly appear anomalous - the last hurrah of a declining power.

Fiona Adkins is economist and bond fund manager with Hibernian Investment Managers