Japan will be in recession next year -- experiencing a 2% contraction in its economy. The U.S. economy will expand, but at a very modest 1.6% rate. Europe will do better -- posting a 2.3% advance in gross domestic product. At least that's the current 1999 forecast from the global economic team at New York-based Merrill Lynch, Pierce, Fenner & Smith Inc. However, the probability that its so-called Armageddon scenario -- depression in Japan and the world's emerging markets coupled with recession in the U.S. and other major industrialized nations -- will occur is now only 20%, half of what was expected in September.