The economy will need another fiscal package to keep it going in the latter part of 1999. But efforts by the Japanese authorities and companies to address the structural weaknesses of the economy have helped to boost investor sentiments. A similar process is happening in China. A fine balance must be struck between reform and growth as reform is having a contractionary effect on the economy. Increased public sector investments in infrastructure have therefore helped to sooth the pains of economic reform, at a time when a falling trade surplus also poses a drag on economic growth.
Investors are still unsure of what is going on.
But it is likely that China would again be able to muddle through its current round of problems. With WTO accession imminent, significant reform is awaiting the country. In the rest of the smaller economies in east Asia, economic recovery is still more driven by a revival in domestic consumer demand rather than by the traditional export engine. The recovery remains therefore somewhat fragile and more time is required for investor confidence to take hold. The rapid surge in share prices in the region, for example, has raised questions as to whether financial markets have moved too far ahead of themselves.