World growth will slow to 2.3 per cent this year from 4 per cent in 1997 as the Asia crisis takes its toll, the Economist Intelligence Unit (EIU) said on Friday.

In its latest forecast for the world economy, the EIU also said the region's crisis would extend until 2001, a year longer than expected.

Meanwhile, Asia would stagnate and, without China, output in the region would fall sharply, it said.

Domestic difficulties and collapsing demand in Asia were likely to push Japan into an economic contraction next year of 1.6 per cent.

Only the recently announced fiscal package prevented the contraction reaching 3 per cent the EIU said.

The trough in Asian output and employment would continue long after financial market stability was restored and Japan would remain lustreless even if the current stimulation package delivered a sustainable recovery.

The yen was expected to bottom out at about 155 yen to the US dollar by October where it would remain until the middle of 1999 "when we hope it becomes clear that structural reforms are being carried through in Japan".

Despite signs of slowing exports, European growth should remain relatively stable, rising to 2.9 per cent this year from 2.6 per cent before easing marginally to 2.8 per cent in 1999 and 2.7 per cent in 2000.

Growth would be 0.5 percentage points higher this year without the Asian factor, the EIU said.