Never make predictions — especially about the future. This is one of those sayings variously attributed to Sam Goldwyn, the great aphorist of American movie-making, Yogi Berra, the malapropist baseball giant, or David Coleman, the unwitting inspiration behind Private Eye’s eponymous Colemanballs.

At this time of year, and in these pages, a more apt observation is probably the warning of the economist-turned British prime minister, Harold Wilson: “If you’re going to give an economic forecast, always give a date or a number — but never both.”

Since my own forecasting record is no better than anyone else’s, I intend to follow the advice of these sages and resist the seasonal temptation. When commentators, to paraphrase Goldwyn-Berra-Coleman, cannot predict the past correctly, it’s a bit rich of them to expect readers to listen to what they have to say about the future.

So I shall content myself merely with posing what I think will be questions, the answers to which will presumably be known in 2007 and will be central to determining how financial markets and the world economy perform this year.

First, how will the great stand-off between the Federal Reserve and the financial markets be resolved? Bond and interest rate futures traders continue to believe that the Fed will cut rates in the first half of 2007. Fed officials remain fairly certain that they will be doing no such thing and that they might still have to nudge rates higher if inflation concerns persist. Nothing, I suspect, will be quite so important to the performance of broader global markets this year than this question. Will the central bank’s view converge downwards to meet the markets’ expectations? Or will markets converge upwards to meet the Fed’s?

The answer will depend in large part on whether American consumers continue to be unfazed by the decline in the housing market and whether the recent swoon in capital expenditures continues. But the ultimate resolution will come only when we know what exactly has happened to the US’s potential growth rate over the past few years. If the pace of productivity improvements has slowed significantly, then inflation pressures will not abate, even at relatively weak rates of demand growth.

Next, how bad will the Middle East get? The US looks set to go for broke in Iraq early this year, with a big increase in troops in a desperate attempt to pacify the place. Optimism about its repeated efforts to secure a lasting victory has not been rewarded in the three years and nine months since Baghdad fell and few will be willing to bet that this latest push will work. Still, we shall have to see.

A decision on what to do about Iran’s nuclear ambitions will also move much closer in 2007, President George Bush’s last effective year in office. The UN’s pathetic sanctions imposed before Christmas seem unlikely to do the job. This confronts the US, sooner than it had hoped, with a crucial choice: military action, with all its horrible consequences, or acquiescence in a nuclear Iran, with all its horrible consequences.

At the back of all this is the much bigger question of whether the deepening turmoil in the Middle East will turn into a full-scale regional war. If it does, a further question is: what will be the main line of cleavage in that conflict — Shia against Sunni Muslims, Arabs against Persians, or all of them against the US and Israel?

In the second half of 2006, oil prices shrugged off all this mounting alarm and tumbled, in response to much narrower and immediate questions of demand and supply. Can that happen again in 2007?

Will the distribution of global growth continue to follow the pattern set in 2006? Last year was the first in more than a decade when Europe and Japan contributed significantly to the world’s demand growth, making up for a somewhat less buoyant US. The sharp decline in the dollar’s value at the end of the year reflected that shift but also imposed some new limits on how much further it can go, as non-US exporters struggle under stronger currencies. A related question is whether changes of leadership in Britain and France will lead to a change in economic direction that will bring real structural reform and lift productivity. Or will they merely re-commit themselves to policies that are storing up economic woes for the long term?

For equity markets, there will be the more prosaic question of whether merger mania continues in 2007. Investment bankers had a good year in 2006 — especially those who advise companies to buy other companies. Sadly, when those mergers end in disappointment — as most of them, if we’re honest, generally do — nobody forces the corporate finance people to pay back the bonuses. So the bankers have every incentive to keep on pushing the M&A drug. Companies are still flush with cash, but takeover targets are looking more expensive. How that tension is resolved will go a long way to telling us whether stock markets will have another big year this year.

In Asia, the usual questions will dominate. Will China’s rapid growth be fast enough to keep covering up the flaws in the country’s financial system? And as wealth compounds, will Beijing be able to keep the lid on the revolution of rising expectations? I could go on, of course. But even as I write I am reminded how conditioned all these prognostications are by the known events of the recent past. All these questions merely ask whether what has happened in the past year will continue — they are the known unknowns that will partly determine economic performance in the next year or so. What will probably matter much more are the unknown unknowns, the questions that arise from events no one foresees this year.

Needless to say, I cannot help you there. All I can do is offer another Sam Goldwyn observation — that a really good movie “should begin with an earthquake or some kind of explosion and work its way quickly to a climax”. If 2007 unfolds like one of those films, here’s hoping the end at least is a happy one.

gerard.baker@thetimes.co.uk

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