International Economic Outlook

The Goldman Sachs Economic Research Group has issued revised growth projections for the global economy. The bottom line: the economic cycle will bottom out in the next 6-9 months. Industrial production has been hit hardest and will continue to experience a prolonged recession. However, GDP in the OECD countries will rise about 1.6 percent this year and a somewhat stronger but still modest 2.4 percent in 2002. The United States will narrowly miss an outright recession but will experience a U-shaped recovery over the next 18 months in which the rebound is much more subdued than in previous cycles. A similar U-shaped recovery should also characterize the OECD countries as a whole. However, a gloomy story continues to unfold in Japan. In recent months industrial production has been declining at an annualized 12 percent rate, while inventories have been rising at a 9 percent rate, an unwelcome combination. The consumer sector is weakening. Housing starts fell at an annual rate of 20 percent in the most recent quarter and retail sales are falling at a 2 percent rate. The risk of recession among the major global economies is highest in Japan, followed by the U.S., with the risk for Europe trailing further behind.