World Trade Organisation (WTO) Director-General designate Dr Supachai Panitchpakdi today said he is pessimistic about a global economic recovery in the short term and warns that the world may face a long period of recession next year.

"I would say, for the whole of next year, we should brace ourselves for a period of recession," Supachai said when asked about a possible recovery in the global economy.

Supachai attributes his pessimism to the fact that Singapore and Hong Kong, which have weathered the crisis well during the last economic crisis three year ago, have been badly affected in the current crisis because of their trade linkages with the United States and Europe.

He also did not rule out the possibility of another global crisis happening after the current crisis because the governments had taken over a lot of public sector debts. He said the lack of financial reforms would expose many private banks to more non-performing loan risks.

Supachai, who is also a former deputy prime minister of Thailand, was speaking to reporters after delivering his keynote address at the National Economic Outlook 2002 Conference organised by the Malaysian Institute of Economic Research (Mier) today.

According to him, most economic predictions have been adjusted downwards but were still tinged with some optimism as the second half of year 2002 was seen as a "period of recovery".

"We should be cautious with that kind of prediction," Supachai warned. "We're talking about the first global recession in the new millineum."

The current recession is based partly on the need for restructuring in the new-economy or high-tech sector. However, the cycle for restocking of such electronics products would only start recovering sometime in the fourth quarter next year, he said.

No region is recession-proof

Europe, currently facing an economic slowdown, is bound by an "Euro commitment" among member countries not to have a budget deficit larger than 3 percent of their gross domestic products and cannot use the fiscal policy as an expansion policy to rehabilitate the global economy, Supachai said..

"This is a crisis which is not limited to any particular area of the world. Countries in Latin America such as Argentina and Brazil are not spared from the global economic problems too."

When asked how Asean countries could compete with China with the rising economic giant's admission to the WTO, Supachai said that Asean should integrate with China for the common benefit.

Asean and China have a combined gross domestic product value of about RM6.5 trillion (US$1.7 trillion) and a total external trade value of nearly RM5 trillion (US$1.3 trillion) in 2000.

In a related development, an AFP report today said that Chinese Premier Zhu Rongji and Southeast Asian leaders have agreed to set up the world's largest free trade zone.

Zhu broached the idea of an Asean-China free trade area (FTA) as a means to strengthen trade and investment links in the region at the Asean-China summit meeting held in Singapore last year.

An expert group, set up to study the broader aspects of the region's economic relations into the 21st century, recommended setting up an Asean-China FTA with a market size comprising China's 1.3 billion people and Asean's 510 million people.

Supachai who assumes the position of WTO's director-general in Sept 2002 will be the first Asian to head the organisation in its 50-year history.

WTO was set up in 1995 after the successful meeting of the Uruguay Round. Prior to its establishment, the organisation was known as the General Agreement on Trade and Tariff (Gatt).