John Kenneth Galbraith, the visionary economist who built his reputation questioning conventional wisdom, once said: “There are two classes of forecasters: those who don't know, and those who don't know they don't know.”

Journalists therefore take up crystal ball gazing with trepidation. But for once, the job of making predictions is relatively easy: if 2008 was bad, 2009 will be worse. It is just the degree of despondency that differs.

Before 2008 had drawn to a close, economists and analysts were spreading tidings of woe. The economy will shrink by 2.9 per cent this year - more than at any time since 1946 - according to the Centre for Economics and Business Research (CEBR).

Meanwhile, the Chartered Institute of Personnel and Development estimates 600,000 people will lose their jobs this year, and many think unemployment will hit three million. In the City alone, from a peak of 353,000 financial services jobs in 2007, numbers are expected to fall by about 62,000, bringing the figure back to where it was a decade ago.

According to some strategists, the future is so dire that the nature of forecasting itself has changed. Ben Read, the CEBR's managing economist, observed that forecasting had become “an exercise in ‘limbo-nomics' - how low can we go?”

It all makes Alistair Darling's prediction that the economy will pick up by the middle of 2009 look naively optimistic. The next three months will be the toughest period for businesses, and the three months after that not much better. While the country may return to growth in the second half of the year, this is likely to be minimal, or based on the fact that the end of last year was so bad that year-on-year comparables will bring an upturn.

The real fear, though, is that the effects of recession - scaled down consumer demand and business activity, an aversion to risk, reined-in credit - will continue for years to come as we settle into more conservative spending and saving habits.

As the tendrils of the US sub-prime crisis continue to spread, companies that escaped the early effects of the credit crunch will find raising money harder in 2009 and the CEBR predicts a collapse in investment of 15 per cent.

Woolworths, MFI, Whittard of Chelsea, Zavvi, Adams, USC ... companies began to topple like dominoes towards the end of 2008 and this will pick up speed in the next quarter. It is expected that a further wave of heavily indebted private equity-backed companies will collapse. “Pre-pack administration” deals, which came out of the woodwork in 2008, will be in vogue.

Cains Beer Company, the Laurel Pub Company and the Orchid Group, which all went into administration, emerged almost immediately in a similar shape under the auspices of their previous owners thanks to pre-packs, which allowed the assets to be bought back without the debt.

Companies that rely on middle-class or discretionary spending are likely to find the going difficult, with Mulberry bags and Chanel sunglasses bumped off the shopping list in favour of paying the mortgage. In a sign of what is to come, it emerged this week that Chanel plans to lay off 200 staff in Paris.

However, while painful for the shops, the spending squeeze could be good for the shoppers. The British Retail Consortium predicts shops will have to go on offering big discounts.

Explore Economics

• Pre-Budget Report 2008

• Budget 2009

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