World Economy to Grow at Lower Rate in 2001: Merrill Lynch

The world economy is expected to grow at a lower rate in 2001, but the prospects are not as bleak as some economists have described, according to economists at the leading US financial management company Merrill Lynch.

The global gross domestic product (GDP) is expected to rise to 3.2 percent in 2001, down from 2000, but stronger than in 1998 and 1999, chief economist Bruce Steinberg told reporters in New York Wednesday, December 6.

In the United States, he said, GDP growth should reach 3.3 percent from 5.1 percent in 2000, and Europe's growth should stand at 2.8 percent from 3.5 percent in 2000. He forecasts a 1.5 percent growth for Japan, down from 2 percent this year.

"We expect growth in emerging markets to slow in 2001 but we don't foresee a rerun of the 1997-98 crisis," Steinberg said.

"Unlike the 1997-98 period when problems in the emerging markets ended up hurting the developed countries, the emerging market slowdown in 2001 is largely caused by the slowdown in the developed countries," he added.

After growing at a double-digit pace for eight consecutive years, capital spending on equipment and software is expected to slow to 9 percent in 2001, which is strong enough to keep the US productivity trend improving, Steinberg believed.

He foresees the Federal Reserve "to ease twice" during the first half of 2001, bringing the Fed funds rate to 6 percent by mid-year.

To deal with slower growth, investors should maintain a defensive stance until central banks have eased sufficiently to turn economies around, said chief global investment strategist David Bowers.

"In our global equity portfolio we are currently overweight on Europe, neutral on the U.S. and underweight Japan and emerging markets," he said.

Chief quantitative strategist Richard Bernstein suggested that investors look for "good old-fashioned basics" like stability of earning growth instead of the fastest earning growth.

He advised them to overweight consumer staples, health care, high quality financials, aerospace/defense, utilities and energy and underweight technology and telecommunications.

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