And it looks like the Federal Reserve will oblige by reducing interest rates. One significant danger to growth would be an unexpected surge in energy costs. Oil and gas prices are projected to fall during 2001. But a serious conflict in the Middle East could send prices sharply in the other direction, damaging the many businesses that can't raise prices to offset increasing fuel costs. Higher energy prices would also force a wider cutback in consumer spending than currently expected.
Financial markets are also vulnerable to a downward spiral of expectations.
If profit news in 2001 is worse than expected, then stock prices could tumble further, the terms on business loans would tighten, and venture capital would dry up. An American recession would be bad news for the global economy. That's because ''the U.S. economy is playing supercharged locomotive to the world,'' says David A. Levy, director of forecasting at the Levy Institute Forecasting Center. Since trade and international investment are so integrated, Levy argues that ''the entire global economy is headed for a severe financial crisis'' if the U.S. fails to grow. Still, many economists expect growth to pick up again in the second half of 2001, especially if the Fed cuts rates early in the year.