As the wet summer of 1998 grinds on relentlessly, the long-running 1990s' equity bull market has been struggling in heavy weather. In recent months evidence is mounting that the global economy could well be slowing over the next two years. The table sets out current economic forecasts for growth, inflation and trade.

The forecasts themselves give little cause for concern indicating that there will be a moderate decline in economic growth as we reach the new millennium.

However, what is creating nervousness in the equity markets is the fact that all the risks suggest that these forecasts will prove to be too high. Looking at each of the three major economic blocs in turn Japan, the US and the Eurozone shows that forecasts for economic growth are likely to be revised down in all three.

The most worrying is Japan (and the Far East generally) which is suffering from recession. The Japanese yen continues to decline heightening fears of a re-ignition of further currency instability throughout the Asia.

The biggest fear is that China devalues its currency which would in turn almost certainly force the Hong Kong authorities to abandon their dollar peg. The financial instability engendered by such an outcome would spill over into Western financial markets. The extent of the damage to Western economies and financial markets in such a scenario is impossible to predict but could be very substantial.

The hope must be that the new Japanese prime minister will be able to begin to solve the Japanese banking crisis thereby allowing the economy to begin to recover during 1999. Japan remains the key to developments in the the Far East and until Japan begins to improve the threat of further instability throughout the region remains high.

In contrast the US economy continues to grow rapidly. Indeed the pace is sufficiently rapid to ensure that the chairman of the US Central Bank, Alan Greenspan continues to warn that US interest rates may have to rise.

Nevertheless, there are signs that US economic growth is slowing and in particular export growth has slowed sharply. If growth in the US does not continue to decelerate then it is highly likely that the Federal Reserve will raise interest rates to prevent a pick-up in inflation.

Either way US economic growth will slow in line with current forecasts and if developments in Asia deteriorate, US growth could turn out even lower than expected.

The European prospects seem somewhat brighter with some acceleration in the rate of economic growth expected once monetary union gets going. However, even in Europe there are some worrying signs that the pace of growth could falter. The British economy seems set for a significant slowdown over the next year or so.

Throughout the rest of Europe it is the peripheral economies such as Spain, Portugal and Ireland which are growing at a rapid rate. The economic recovery in the all-important German and French economies is still somewhat tentative. While domestic demand has begun to expand steadily in Germany and France, exports have already begun to show.

Shares in industrial companies such as Smurfit, Waterford Wedgwood and CRH have declined as global growth forecasts have been scaled back. This pattern has been replicated in most stock markets where shares in the pharmaceutical and telecommunications sectors have done better than the average return from overall stock market indices.

Unsettled conditions are likely to continue for some time yet in most stock markets. However, the silver lining remains the fact that inflation rates are likely to remain low around the globe.

With interest rates and bond yields low investors are going to continue to seek out value in the equity markets.