The EIU report, "World Car Forecasts 1998", said the slump was a direct result of economic collapse in Asian economies including Indonesia, Malaysia, Thailand, the Philippines and South Korea, as well as the deepening Japanese recession and a slowdown in Brazil.

The 1998 sales slump would not be easy to recover from, said the report, predicting that it would be 2001 before the market recovered to volume levels seen in 1997.

The global car annual sales are forecast to grow from 1997's 36.2 million vehicles to 39.6 million by 2005.

That shows a compound annual growth rate of 1.1 per cent over the coming years, said the report.

The biggest problem for the world car makers remains overcapacity, with the industry able to make 71 million vehicles a year while sales stand at just 49 million.

Recentinvestment in emerging markets looks set to exacerbate the problem and will increase pressure for industry consolidation, said the EIU report.

That process has already begun, with US car maker Chrysler Corp recently announcing a merger with Germany's Daimler-Benz AG. General Motors Corp is also talking to Daewoo Corp about buying a stake of up to 50 per cent in the South Korean company's car division.

Despite the long-term gloomy global picture, western Europe's market remains on track for a record year in 1998, after an upbeat first quarter.

Sales volumes in the region are seen rising by 5.6 per cent to more than 14 million units for the first time, with most growth seen coming in the second half of the year.

This growth is being fuelled by EU governments' incentive-led scrappage schemes for old fuel inefficient vehicles.

But as these schemes expire, the European market is then expected to suffer three years of decline, with units shrinking by 1.5 million vehicles in the period to 2001.

Themarkets with the highest growth prospects will be China, India and Vietnam, with growth of six per cent per annum to 2005. Despite problems in 1998, Thailand and the Philippines are also seen turning around in the following years to notch up improved growth rates.

Russia, Romania and Poland are all seen showing fast growth, thanks to new investments and joint ventures.

Average growth at a compound 2.5 per cent per annum are seen in Colombia, South Africa, Hungary, Turkey and Indonesia.