Economists and policy-makers of the developed world expressed divergent views on how the global economy will perform in the next couple of years.

While policy-makers stoutly defended their plan of action, the economists said whatever was being done was too little and too late.

Participating in a World Economic Forum session on the global economic outlook, Paul Krugman, professor of economics at Princeton University, said the Japanese economy was the wonder of the world in a negative way.

Either Japan got out of its current malaise or its economy would head for a major catastrophe, Krugman warned.

The only silver lining was that the Japanese policy-makers seemed to be planning some corrective action, he said.

John T Chambers, president and CEO of Cisco Systems, said efficiency improvements held the key to a recovery in the US. Although the economy was chugging along, business investment was absent, he said.

In a scathing attack on the manner in which the European economy was being managed, Martin Wolf, former senior economist with the World Bank and chief economics commentator of Financial Times, said the role of Japan essentially was to make the euro zone look good.

He said the stability and growth pact among EU members made little sense and deficits had to be looked at closely by focusing more on spending.

Germany and Italy, the two largest EU members, were in need of structural reforms, but their promises of policy changes had zero credibility, Wolf said.

Obviously stung by such criticism, Japanese minister for economic and fiscal policy, Heizo Takenaka, explained that the problems in Japan were on the supply side.

He said it was difficult to restore Japan's economy to a healthy position in one or two years.

But the good news was that major banks in Japan were restructuring and a new system for setting up deregulated special zones was being started.

Takenaka saw a 2 per cent growth in GDP for Japan in 2003.

Donald L Evans, the US secretary of commerce, said the fundamentals of the US economy were sound, with low inflation and a 5-6 per cent growth in productivity, which was a 30-year high.

The US was introducing a pro-growth policy package that included tax cuts and the establishment of a trade promotion authority. The objective was to create conditions for growth in the next 10 years.

The French minister of economy, finance and industry, Francis Mer, said contrary to what Wolf feared, his government was determined to boost growth and improve stability in the European region. There was need to build confidence in Europe and it was feasible to introduce flexibility in labour laws.

German secretary of state of finance, Cai Kochweser, underlined the need to refine the stability and growth pact.

Germany's 1 per cent GDP growth should be seen in the context of its having absorbed East Germany, an economy of zero productivity, and raising that to US standards in the past 10 years. He promised increased public investment and a new immigration policy.

Krugman intervened to quote John Maynard Keynes's famous saying that "in the long run, we are all dead". All the policy-makers were talking about long-term policy changes.

While the problems were worsening, there was a noticeable lack of desire to take quick corrective action. "The Bush package provided very little short-term stimulus", he warned.

Evans concluded by pointing out that the most important thing was to impart stability to policy-making. People spend more when there was stability, he said.