Published: December 31 2004
Prediction is very difficult, especially about the future - as Nils Bohr, the Danish Nobel laureate observed. Yet most of the FT experts who ventured a year ago to forecast the events of 2004 can hold up their heads with pride.
David Gardner said that Iraq would regain its sovereignty, with an interim government to prepare elections for a constituent assembly. Osama bin Laden remains at large, as Mark Huband foresaw - still unbetrayed by his followers. And China kept the renminbi pegged to the dollar - with the consequent difficulties for monetary stability predicted by Martin Wolf.
In a year of elections, US President George W. Bush was re-elected as Gerard Baker predicted. Russia's president Vladimir Putin secured the landslide victory anticipated by Stefan Wagstyl. Philip Stephens was spot-on when he said Britain's Tony Blair would survive parliamentary rebellions and the Hutton report on the death of David Kelly, the weapons inspector.
Kerin Hope confounded the sceptics with her accurate prediction that Athens would be ready for the Olympic Games. Daniel Dombey was right to forecast that the European Commission would not block France's rescue package for Alstom.
Martha Stewart went to jail, while the hefty sentence Frank Quattrone is appealing against demonstrates the toughness of US sentencing that Lionel Barber warned about. Germany's three private-sector banks remained independent for exactly the reasons outlined by Charles Pretzlik - it is hard to see any benefit in acquiring one.
John Plender thought stock markets would fall in either 2004 or 2005, and plumped for the former. But the future is even more difficult to predict in markets than in most other fields - as Nils Bohr would have realised if he had been an economist rather than a physicist. John Willman
Who will vote against the new EU constitutional treaty?
Approval of the European Union's new constitutional treaty faces tricky hurdles. Ten of the 25 member states have promised to hold national referendums. Although opinion polls are positive everywhere except Britain, at least three other countries could vote No: Denmark, France and the Netherlands. Parliamentary ratification could be a problem in the Czech republic.
A French Yes is more likely after the Socialist party decided to back the treaty, but the prospect of Turkey joining the EU could boost the No votes. The same could happen in the Netherlands, where support for the EU is declining. On balance, a Yes vote in both is still the most likely outcome.
The same is true of Poland, once thought sceptical, and the Czech republic. Even in Denmark, euro-scepticism is in retreat after a disastrous European election. So that leaves the UK as the country most likely to reject the treaty - in 2006, after all 24 other member states have said Yes. Quentin Peel
Will Iraq have elections?
Yes. On January 30 Iraqis are due to elect an assembly that will draw up a new constitution as well as nominate a provisional government until general elections can take place. The insurgency may prevent voting in some provinces, along with a threatened boycott by the Sunni minority smarting at its loss of political hegemony. But to delay the vote would inflame the already seething majority Shia, who expect their forbearance since the US invasion to translate into power.
The real winners will be the Islamist parties heading the list sponsored by Grand Ayatollah Ali al-Sistani. Though neither they nor he espouse Iranian-style clerical rule, this outcome was not what the Pentagon and the White House had in mind. David Gardner
Will George W. Bush be less unilateral in his second term?
Yes. The US is fighting wars on three fronts: Afghanistan, Iraq and the global hunt for terrorists. The army is stretched, the reserves are under strain and no one wants to reintroduce the draft. The pressures on the president are economic and political as well as logistical - and he is more boxed in than during his first term when the US was running a budget surplus. Also, the US is short of allies.
Mr Bush will still pursue a robust foreign policy, seeking co-operation on his terms. One figure to watch as a guide to sentiment: Condoleezza Rice, the nominee for US secretary of state. Lionel Barber
Will the main markets finish 2005 lower?
Last year the US and Japanese economies were staring at a green light. The worry for equities was that a correction of US financial imbalances might prevent global growth powering equities upwards. In the event gradualist tightening by the Fed and a falling dollar failed to frighten the markets.
Gradualism continues. With US interest rates still below a neutral level the US and world economies will grow, but more slowly. US households will not stop borrowing. Financial institutions will exploit a still positive yield curve to speculate, while debt will soar further. The snag is that corporate profits growth will slow and credit quality will deteriorate. Equities will be buoyant initially, with more corporate deal making. But realism about this unsoundly financed recovery will ultimately dawn and the main markets will end the year down. John Plender
Will China revalue its currency?
Much pressure will be put on China to revalue the renminbi in 2005. But the Chinese authorities will resist, since they believe that the costs of such a move greatly outweigh the benefits.
Maintaining the peg creates some difficulties: foreign currency reserves have soared to over $500bn (€367bn), while the economy has overheated. Yet the authorities believe these costs are manageable: US interest rates are very close to those in China, which limits the cost of holding reserves and sterilising the monetary impact of intervention; and administrative controls over bank lending are deemed effective.
Moreover, a small exchange-rate adjustment would have little effect. But a big one would undermine competitiveness and could push the economy back into deflation. Abandoning the fixed peg would mean jettisoning the economy's monetary anchor. An exchange rate adjustment could also damage the fragile financial system.
It is unclear what the best alternative to the peg might be. Overall, China will cling on to nurse, for fear of something worse. Martin Wolf
Will the EU's stability pact be reformed?
The European Commission recently made a proposal to reform the eurozone's defunct fiscal policy framework. There are still some disagreements over details, but there is enough common ground for agreement on a reformed stability and growth pact.
The trouble is that a reformed pact will have just as little impact on national fiscal policy because the inflexible rules of the Maastricht Treaty will remain. The two main targets of European fiscal policy are a ceiling for the annual deficit-to-gross domestic product ratio of 3 per cent and a 60 per cent debt-to-GDP ratio. The eurozone would need to grow at a nominal rate of 5 per cent a year for the two goals to be compatible - significantly higher growth than at present. The 3 per cent rule is too restrictive in the short run, too lax in the long run.
Under the Commission's proposals, there will be a greater focus on debt and long-term sustainability. In applying the pact, the Commission will place greater emphasis on country-specific circumstances. Perhaps most important, it will take greater account of prolonged periods of low growth than at present. More flexibility is a good idea in principle - but not much will change in practice. Wolfgang Münchau
Will Tony Blair be re-elected?
Yes - but the interesting question is what happens next. Tony Blair's government can hardly claim great popularity. The Iraq war, cabinet infighting and ministerial hubris have cast a shadow over its achievements in economic management and in reshaping the debate about public services. But the prime minister seems destined to win a third term by virtue of the Conservatives' dismal failure to present a credible alternative. But the question is whether Mr Blair can keep his pledge to serve a full third term. Friends of Gordon Brown, the ever-impatient chancellor, say certainly not. The referendum on the new European Union constitutional treaty could prove Mr Blair's nemesis. Philip Stephens
Will Japan escape from deflation in 2005?
No. There will be some months of inflation as Japan claws its way out of its deflationary mire, but there will not be a sustained move into positive price rises or full-year inflation. The Bank of Japan has played its hand skilfully in tackling deflation under Governor Toshihiko Fukui, but it has run out of policy options. And while the health of the economy has improved - with significant progress made in repairing bank balance sheets - growth has stalled over the past few months. The tumbling dollar poses a new threat to Japan's exporters, which have been driving the economic revival of 2004, while improving corporate profits have not passed through into wages. As a result, consumer demand remains weak. Add to that the risk of policy mistakes, such as tax rises, and it is unwise to hold high hopes for rising prices in Japan. John Ridding
Will oil end the year at more than $50 a barrel?
No. Oil consumption is likely to return to its usual pattern of rising less fast than overall expansion of the world economy following 2003-04 when, for the first time in 30 years, the increase in oil demand almost matched economic growth because of surging oil demand from China. China's economic growth is expected to slacken in 2005, while the high price has spurred investment in new oil fields. This should gradually offset the production problems that will probably continue to plague Iraq, Venezuela, Nigeria and Russia. The only thing that would definitely send prices back above $50 a barrel would be a Middle East crisis such as a US strike on Iran's nuclear facilities or revolution in Saudi Arabia. David Buchan
Will commodities keep rising?
Commodity prices are notoriously volatile. After two years of rising base metal prices and three years of gold increases, it would be fair to assume that commodity prices are close to peaking. But there are plenty of factors likely to keep them high next year. Despite rising base metal output, prices are likely to remain near medium-term highs as Chinese demand for raw materials continues to be robust. Soft commodity prices are also looking up, with rare production deficits forecast for coffee and sugar in 2005. Kevin Morrison
Will hedge funds continue to attract so much money?
Yes. Hedge funds had a disappointing year in 2004, but not a disastrous one. Returns in most sectors were positive and there were no melt-downs on the scale of Long-Term Capital Management. Pension funds and high net worth individuals who were over-exposed to equities during the bull market of the 1990s suffered between 2000 and 2003. The absolute return focus of hedge funds is thus highly appealing.
But it takes time for investors to commit to the sector. Among pension funds, not only must the trustees be convinced but also the consultants who advise them. That process has now started, and short of some imminent scandal, is unlikely to be halted in the short term. Philip Coggan
What will be hot in technology?
A cathode ray tube in the living room will be passé by this time next year. The price of flat-screen televisions halved during 2004 thanks to competition between rival technologies and a glut of liquid crystal displays on the world market. Expect more of the same in 2005, bringing the price of 30-inch LCD models down to $1,000 or less. That should be enough to turn flat-screen TVs into a mass market phenomenon. Japan's Electronics Industries Association predicts 16m LCD and plasma TVs will be sold in 2005, more than double this year's total.
Market research by the US Consumer Electronics Association found that the gadget most likely to be purchased as a gift this holiday season was a digital camera. But the gift most Americans would have liked to receive was a big, plasma television. Next Christmas that wish may come true. Simon London
Will the Middle East peace process be revived?
A "process" will be revived in 2005 - but do not expect peace. With the passing of Yassir Arafat and the almost certain election of Mahmoud Abbas in January, Israel can no longer claim it has no negotiating partner. But much of the talking this year will be about Israel's planned withdrawal from the Gaza Strip - and not about the establishment of a Palestinian state or a permanent settlement to the conflict.
Israel, which conceived the Gaza plan as a unilateral move, will now be ready to co-ordinate it more closely with the Palestinians. At the same time Ariel Sharon will be engaged in domestic talks with opponents to the plan within his own Likud party and the Jewish settlers movement.
There will be much pressure - from Palestinians and the world community - on Israel to move beyond Gaza after the evacuation and discuss substantial withdrawals from the West Bank. Israel, however, will resist, insisting the world should wait to see how Palestinians perform in Gaza. Roula Khalaf
Where is Africa's next crisis?
A new west African trouble-spot could be Guinea, facing a potential upheaval once ailing General Lansana Conté, the president, finally departs after 20 years in power. Government finances are in a dire state, and inflation rampant. With all the ingredients for conflict, the army can be expected to want a role in filling the power vacuum.
But the more obvious danger is of old African trouble-spots erupting again. Transitional peace arrangements in Ivory Coast, Liberia and the Democratic Republic of Congo are extremely precarious. All three are supposed to have elections in 2005, although none of them looks fit to hold them. David White
Will Latin America turn further to the left?
Yes, but only at the edges. High oil prices give President Hugo Chávez the ability to pursue his brand of autocratic populism and Argentina's President Néstor Kirchner will continue to blame the International Monetary Fund and foreign banks for his country's economic problems. There could be upsets in some smaller countries. In Bolivia, President Carlos Mesa could be vulnerable to the street protests that unsettled his predecessor.
However, even Argentina is likely to stick with the cautious monetary and fiscal policies that are helping curb inflation across the region. In Brazil, President Luiz Inácio Lula da Silva has moved firmly to the centre since his election two years ago. His success in stabilising and revitalising an economy on the edge of financial collapse in 2002 sets the tone for politics in the region.
Buoyant commodity prices are making Latin America less dependent on international financial markets for the moment. But the region's political leaders - whether leftwingers such as Mr Lula da Silva and Mr Kirchner or rightwingers such as Colombia's Alvaro Uribe - are opting for middle-of-the-road pragmatism. Richard Lapper
Will there be a deal on Kashmir?
There is no possibility of India and Pakistan agreeing within the next year to a permanent settlement. New Delhi will never climb down from its position that Kashmir - its only Muslim-majority province - is integral to a secular India. And military-ruled Pakistan will continue to insist that Kashmir's 1947 accession to India was illegal.
However, the two sides will continue their one-year-old peace process and there is a reasonable chance they will agree to a few symbolic "confidence-building measures". These will include a civilian bus link between the divided halves of Kashmir and a further reduction in Indian troop levels in the province. It will be a year of incremental improvements in relations between the nuclear-armed rivals. But no dramatic breakthroughs. Edward Luce
Which city will win the 2012 Olympic Games?
Paris or London. With Madrid, Moscow and New York making up the numbers, this is the strongest Olympic field ever. Moscow can probably be discounted on security grounds, while New York will struggle to overcome antipathy to the Bush administration. In any case, it is probably Europe's turn, with the Games going to Asia (Beijing) in 2008 and North America (Vancouver) in 2010. With the Games held in Barcelona as recently as 1992, Madrid needed a flawless campaign to compete successfully against local rivals. The racist abuse meted out to English footballers by Spanish fans in Madrid looks to have dented its chances.
Provided Paris has learnt from its mistakes in bidding for the 2008 Games, it should win the day. But London could yet pull off a surprise if it talks up the passion of its sports fans, the sporting and infrastructural legacy the Games would leave and Great Britain's strong paralympic record. David Owen
Will 2005 be the hottest year since records began?
Whatever the global warming sceptics may say, human activities - particularly the burning of fossil fuels - are heating things up. Nine of the 10 hottest years on record have occurred in the past decade, according to the UK Met Office. Whether 2005 breaks the all-time record for average global temperature, set in 1998, will depend on the interaction between the overall warming trend and short-term factors such as volcanic eruptions and the El Nin~o oscillation in the Pacific ocean.
I predict that 2005 will be the second warmest on record - and I hope for a particularly long, hot and steamy summer in the US, to drive home the reality of global warming. Clive Cookson