The outlook for the world economy is improving and Asia is leading the way as the region's recovery from the crises of 1997 and 1998 accelerates, the Economist Intelligence Unit said in a report released today.

Despite optimism on the global economy, however, the think tank warned in a report that the U.S. economy would slow in 2000 and 2001 and that Japan was not yet on the path to sustained economic growth. "The pace of recovery is stronger than expected three months ago, with global growth forecast to average 2.9 percent in 1999, accelerating to 3.3 percent in 2000," chief economist Robin Bew said in the report.

The report forecasts that the Asia-Pacific economy will grow by 2.3 percent in 1999, accelerating to 2.5 percent next year and to 3.5 percent in 2001.

Asia's economies, which were hit hard by a financial crisis that began with a devaluation of the Thai baht in 1997, are unlikely to resume their pre-crash growth levels any time soon, the report said. It stressed that further action is needed and that the rapid recovery in Asia could even prolong some of the deep-seated problems in the region's economies.

China, which is suffering from a drop in stellar growth rates, may face significant problems if domestic demand and exports do not accelerate. China also could face a currency devaluation.

The United States, world's largest economy, is in its second largest period of expansion in history and is expected to grow further, albeit at a slower rate, the report said. The EUI forecast 3.9 percent growth in the United States this year, slowing to 2.7 percent in 2000 and 1.7 percent in 2001.

Elsewhere, the think tank said it was wary of a nascent recovery in Japan, which has an official growth target of 0.5 percent in the 12 months ended March 31. The report said, however, that the deep recession of 1998 is almost certainly over.

"However, an end to unbridled contraction is not the same as a robust recovery," the report said.

In Europe, including East Europe, growth will remain slow in 1999, with just 1.9 percent growth this year, compared with 2.8 percent in 1998. Germany, the largest economy in the European zone, remains vulnerable, as does Italy, the report said.

"The weakness of the euro, the recovery in Asia, and rising employment should allow a gradual recovery in the second half of this year and into 2000, but a dramatic pickup looks unlikely, given the lack of support from fiscal policy in German and Italy," Bew said.