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The U.S. economy should avoid a recession next year but only by a narrow margin as the business cycle declines to a growth rate of about 2 percent, a Merrill Lynch & Co. economic forecast said Tuesday.

"We should escape a full-fledged recession, but it may be a close call," said Donald H. Straszheim, Merrill Lynch's chief economist, in the investment firm's annual economic and investment outlook report.Straszheim forecast a 2 percent expansion of the U.S. gross national product - the value of all goods and services - next year amid falling industrial capacity utilization, higher unemployment and weak earnings.

Top stock market performers will be capital goods and energy issues instead of consumer and financial stocks, Straszheim said. Below-average returns mean "1990 may well be a year to sow rather than to reap," he said.

Inflation should be around 4 percent to 5 percent, while the Federal Reserve will bring interest rates down early in the year to stimulate the flagging economy. The dollar will continue its decline.

"The dollar is expected to fall unevenly in response to slower U.S. growth, lower U.S. interest rates compared to overseas, only modest improvement in trade and continued difficulty in reducing the federal deficit," said Straszheim.

Chief investment strategist, Charles I. Clough said markets "are entering a new decade with the lowest rates of money and credit growth in 20 years." The best returns for the 1990s will be in "higher manufacturing productivity rather than in real estate or financial assets," he said.