The Silicon Valley bubble could burst as early as next year in the fall-out from the Asian economic crisis, say new forecasts.
A non-profit thinktank, Milken Institute, predicted that California will see a dramatic slowing in its economy by the early months of 1999.
The main problem is the high dependency of Silicon Valley IT firms on exports to Asia, said Milken.
There are two possible scenarios, outlined by the report. One, which it labels 'consensus', assumes that further countries will be hit by recession, particularly those propped up by the International Monetary Fund, so shrinking the IT companies' markets.
Even worse is the 'pessimistic' scenario, which would happen if China were to devalue its currency, the yuan, causing massive economic upheaval in Asia.
In the former case, growth in California's gross state product would fall by one percentage point to 2.4 per cent next year, almost entirely because of falling exports to Asia.
In the latter situation, GSP growth would drop to just two per cent next year and to 1.2 per cent in 2000, with exports to Asia contracting by 17.2 per cent in 1999, and continuing to fall - though by smaller degrees - in 2000 and 2001.
"Silicon Valley would go into a recession if the pessimistic scenario becomes reality and events are moving us in that direction," said report author Ross DeVol.
California's exports of manufactured goods fell in the second quarter this year for the first time in seven years, because of falling demand from Japan and South Korea. Hi-tech products account for three-quarters of the state's exports to Asia.
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