Speaking at the bank's annual assessment of global prospects, even Abby Cohen, Goldman's notorious stock market bull, sounded a cautious note about equities.
Ms Cohen, who doggedly stuck to her upbeat 1998 forecasts for US stocks despite the recent turmoil, said she was not as "exuberantly bullish" as she had been in the past.
She said: "For most of the last year the [US stock] market has been roughly at fair value. [US] stock prices can rise in 1999, but at a more normal rate."
According to Ms Cohen, the resilient nature of the US economy means that US corporate profits will continue to rise next year, despite the difficulties in the global economy.
She said: "The analogy for the US economy is a supertanker. It may not be the fastest-moving, but it is among the steadiest."
Gavyn Davies of Goldman's, a highly-rated City economist with close links to the Labour Party, also warned that the remarkable rise in global stock markets in recent years was not sustainable. He said: "We are not going to get double-digit equity returns [in 1999]. If we do, we will start worrying about a bubble. If we see returns like in recent years, this will qualify as a major overshooting."
Mr Davies believes global equity returns will be around 5 per cent next year, while bond returns are likely to lie between 6 and 7 per cent.
Goldman's views are in line with many leading investment houses, where there is a widespread belief that the bond market now offers good value.
Also, as with many City forecasters, Goldman Sachs is gloomy about UK economic prospects. Little growth is expected in the UK stock market next year, and the UK economy is predicted to grow at just 0.5 per cent, significantly less than Treasury and Bank of England forecasts.
According to David Walton, chief UK economist, UK market analysts have been far too optimistic about the outlook for corporate earnings.
He said: "Analysts' earnings expectations are much too high at over 10 per cent. An outturn of zero is about the maximum likely. The UK equity market is forecast to trade sideways."
Mr Davies said this over-optimism about corporate profits was not confined to the UK, and predicted that growth in the OECD countries would slow from 2.2 per cent this year to 1.6 per cent in 1999.
World growth is forecast to remain unchanged at 1.8 per cent, largely because of recovery in much of Asia.
A devaluation of the Chinese currency or a drying up of credit lines to borrowers in Latin America or Central Europe represent the two biggest downside risks to the central forecasts, says the bank.
There are few global inflationary pressures, Mr Davies said, and there is even a risk of deflation - that is, falling prices - if central banks fail to respond appropriately to slowing growth.
This low inflation environment favours bonds, and Goldman Sachs predicts that bond yields will fall even further during 1999. Mr Davies said: "Our models do not indicate that a bubble has appeared in bonds. Bond yields could drop another 40 to 50 basis points."
On a sectoral basis, Goldman Sachs favours services and technology-based consumer and capital goods - media, telecommunications and information services number among the bank's favoured sectors.
Consolidation could produce "extraordinary gains" in financial stocks, while energy stocks are unlikely to do well, the bank said.
t World growth to stagnate
t US and UK to slow, Asia to recover
t Global bond returns to exceed global equity returns
t UK stock market to move sideways
t Interest rates to fall furtherReuse content