The latest slowdown in the global economy is having a bruising impact on many Asian countries just as they were brushing off the after- effects of the regional financial crisis of 1997-98. But whereas the previous crisis could be largely blamed on distortions in Asia's own economies this latest setback is almost wholly the result of faltering demand in the US and Japan - especially in the electronics sector.

The pricking of the US internet bubble and the softening of consumer demand following the terrorist attacks of September 11 have wrought real economic damage right across east Asia. Taiwan, which makes a high share of the world's computer components, has been the most striking casualty. The island's once-vibrant economy contracted by 2.4 per cent in the second quarter on a year-on-year basis because of a slump in exports. Economists forecast that Taiwan's gross domestic product will shrink by 1.5 per cent in 2001 - the economy's worst performance in 26 years.

Other export-oriented Asian economies, such as Singapore and Hong Kong, which showed great resilience in the last financial crisis, are also experiencing a shuddering economic deceleration. Consensus Economics, which tracks the forecasts of 130 Asian economists, suggests that the real growth in the Asia-Pacific region will amount to just 1.1 per cent in 2001 compared with 3.3 per cent the year before.

But even the most pessimistic economists have been surprised by the speed and scale of the slowdown and are still grimly cutting their growth forecasts.

This latest downturn in the region is notable for hitting the leaders in developing Asia more than the laggards. For instance, Indonesia, which suffered the worst shock in 1997-98, is proving surprisingly durable thanks to the economy's low exposure to hi-tech industries and its big dependence on high-priced oil exports and agriculture.

China, too, is a glaring exception to the gloomy mood and is expected to notch up economic growth of almost 8 per cent this year. China's economy has been buttressed by the remarkable inflow of foreign direct investment in anticipation of the country's entry into the World Trade Organisation. It has also benefited from robust domestic demand as the country's growing middle class clamours for the latest consumer goods.

It was announced in August, for example, that China had just overtaken the US to become the biggest mobile phone market in the world with 120.6m users. But government officials predict this number could rise to 260m by 2005.

Even so, Zhu Rongji, the Chinsese premier, has recently warned that the government may be forced to take further measures to stimulate the economy - especially if the US slowdown seeps into other consumer sectors.

Other Asian governments, which generally have low levels of public debt by world standards, are realising that they can also do more to protect their economies from the worst effects of the economic slowdown.

Several countries, such as South Korea, are adopting big fiscal stimulus packages and are discovering a fresh impulse to implement painful corporate restructuring needed to unleash domestic demand. Korean banks are shifting resources from corporate to retail banking, encouraging a growth in consumer demand.

Singapore, too, is trying to make its economy more competitive in the global market place by attracting more foreign managerial talent to work in the island state and encouraging its biggest companies to invest abroad.

"We cannot do things the old way and still expect to prosper," said Goh Chok Tong, Singapore's prime minister, in his National Day address. "We have to work out fresh strategies and develop new capabilities, to compete not just against the low-cost emerging economies, but also the developed economies."

The startling financial changes that have swept across much of Asia since 1997-98 have left many countries in a better shape to endure the current slowdown. With the exceptions of China and Malaysia, most Asian countries have adopted floating exchange rate regimes which have had the effect of injecting greater flexibility into their economies.

The region's central banks have been steadily accumulating hard currency reserves. There have also been startling turnrounds in many countries' current account balances, making the region less dependent on external financing.

In 1995, emerging Asian countries had a current account deficit of $37bn but this swung into a surplus of more than $100bn by 1999 as imports fell and exports rose.

Corporate Asia has embarked on a massive de-leveraging exercise as highly-geared companies have paid down external debts. Fitch IBCA, the credit rating agency, estimates that the five countries worst hit by the Asian financial crisis - Thailand, Indonesia, South Korea, Malaysia, and the Philippines - have collectively reduced their net external debt by well in excess of $100bn since 1997.

Moreover, Asia's leaders are trying to do more to stimulate intra-regional development by liberalising trade ties and encouraging greater co-operation. The 10 members of the Association of South-East Asian Nations (Asean), plus China, Japan, and South Korea, are haltingly exploring means of promoting growth.

Nevertheless, for the time being east Asia's economic health remains linked with demand in the world's two biggest economies. Workers and investors across the region are desperately praying that US consumers continue their extraordinary spending spree and that Japan does not lurch into a downward economic spiral.