In its latest report, the US investment bank has said that India and China are the only two countries in the Asian region where the economy is likely to grow during fiscal 1998.

Goldman Sachs has cited a widening credit crunch, higher risk premiums on regional debt and a slowdown in external demand as the factors for cutting its forecast of gross domestic product (GDP) growth in Asian nations minus Japan.

While the bank left India's growth forecast unchanged at five per cent for the year, it predicted a 7.6 per cent growth in the Chinese economy which is still lower than the earlier prediction of 8.2 per cent growth.

In 1999, India and China are expected to record a growth of 4.5 and 8.3 per cent respectively, Goldman Sachs said. It had predicted growth rates of 5.1 and 8.6 per cent earlier.

At theother end of the spectrum, the bank predicted that Indonesia's economy will shrink by 18.5 per cent in 1998 while that of Hong Kong and Malaysia would witness lower growth in 1999 after declining this year.

The drastic revision in Hong Kong's GDP outlook is to reflect the view that in the wake of the recent government market intervention, defence of the HK dollar's peg will come at a higher cost, Goldman Sachs said.

In general, the banker said outlook for the region turned negative due to a combination of factors at home and abroad, but added that the battered economies are expected to weather the storm.

"Weaker external demand and a higher risk premium will mean lower current account balances and GDP growth," the US investment bank said while stating that the net impact on both fronts would be negative for Asia.

While there have been some advancements in financial sector restructuring since the last update in Thailand and Korea, the same cannot be said of corporate balance sheet adjustments, GoldmanSachs said.

"As a result, we find evidence that: one, the credit crunch problem is intensifying and two, the aggregate leverage in the economy is rising, not falling," it said.

Looking ahead, Goldman Sachs said non-Japan Asia's near to medium-term outlook will continue to hinge more critically on the severity of the banking crisis and the speed and comprehensiveness of a policy response.