Gillian Tett will receive a bonus – probably paid in toxic assets – for correctly seeing that the financial crisis could spread, creating a “second chapter” in the credit crunch, but the depth of the sector's problems knocked others off course. Krishna Guha's prediction that the US would avoid recession if it avoided any large shocks might well have been right. But who knows?
Voters, alas, proved even less predictable than the economy. Clive Crook predicted Hillary Clinton would be US president-elect; John Willman thought Ken Livingstone would secure a third term as London mayor. Chris Cook
Will the recession end in 2009?
No, as far as the US, the UK, Spain and Ireland are concerned; possibly Yes for other European economies and Japan. Whatever happens, 2009 will not be pleasant. For all the cuts in interest rates and taxes, higher unemployment will be the dominant issue of the first half of the year, outweighing gains to real incomes from these policies and lower commodity prices. Uncertainty will be the watchword for the year, making any prediction precarious, but there is still a good chance that rising incomes will become powerful forces in the continental European and Japanese economies later in the year. For those economies that need much bigger rises in household savings rates to adjust for the recession, recoveries will be delayed. There is also a good chance the world will enter a debt-deflation trap, although I hope the authorities will do everything to avoid this. But even if we experience genuine green shoots of recovery, as I expect, 2009 will be a year to forget. Chris Giles
Will China revalue its currency?
Between July 2005 and the summer of 2008, the renminbi appreciated by 21.5 per cent against the US dollar. Over the same period the trade-weighted real exchange rate (calculated by JP Morgan) appreciated by only 13 per cent. After July 2008, however, the dollar rose sharply, in real terms. So the real exchange rate for the renminbi rose by another 9 per cent between July and November, although its nominal rate against the dollar remained roughly constant. Thus, the outcome may be different from China's intentions.
The government is caught between a desire to maintain export competitiveness and external pressure to let its exchange rate appreciate. On balance, I expect the outcome to be a modest appreciation against the dollar. Meanwhile, the real value of the dollar should decline over the next 12 months. If so, the overall real exchange rate of the renminbi is likely to depreciate. That may well lead to global trade war in 2010. Martin Wolf
How far will central banks go?
Central banks will go all out in 2009 to fight the crisis. Interest rates will converge towards zero in all the main industrialised economies and a number of central banks – including the Bank of England and the Bank of Japan, though possibly not the European Central bank – will follow the US Federal Reserve in pushing deep into unconventional policy territory. In most cases this will mean committing to keep rates near zero for a long time and printing money to make loans and buy assets (possibly other currencies, in the case of Japan).
Radical measures should ensure most large economies – including the US – avoid sustained deflation, although inflation will still fall to uncomfortably low levels over the next year or two before quite possibly taking off again as the world economy gathers strength with lots of reserves in the system. Even extraordinary central bank support may not be enough to bring a swift and strong recovery, though. Krishna Guha
Will the banks be taken over by the state?
It depends how severe the recession is. State-backed recapitalisation in the US and Europe has already in effect nationalised some banks. The US Treasury's $50bn (€36bn, ￡34bn) of preferred stock in Citigroup exceeds its market value. The British government owns 58 per cent of Royal Bank of Scotland. If bad debts prove to be more severe than expected, more banks will need another dose of capital, with governments the only providers. But extra capital will not, in itself, stimulate lending unless governments simultaneously take steps to restart the wholesale lending markets. For now, governments insist state ownership will be temporary and that banks will be managed at arm's length until they can be returned to the private sector. Unless politicians want to force banks to extend credit to unworthy borrowers, that will probably remain the case. But the crisis has revealed the extent to which taxpayers are the guarantors of the financial system. In future, they will demand a greater say in how their banks are run. Peter Thal Larsen
What will equities do?
Equities will find it hard to make headway in 2009 and there will not be a strong recovery until credit market conditions show real signs of improvement and forced selling abates. It is going to be a year of deep recession, when earnings and dividends are falling, and not all the likely disappointments are currently factored in.
But, at some point, shares will start anticipating economic recovery as the government stimulus packages and central bank rate-cutting start to have an impact. Given that 2008 was the worst year for equities since the Great Depression – worse even than 1974, when heavy falls were followed by a strong rally in 1975 – there is scope for a rebound. Just do not expect a sustained bull market. Chris Brown-Humes
Will oil end the year above $40 a barrel?
Demand for oil is falling. The drop in crude below $35 a barrel has made gas-guzzlers seem rather more appealing than they were at $147, but a deep global recession will mean that the demand for oil for all uses, from plastics to air travel, will continue to decline. The comforting idea put about by the oil bulls that Chinese demand could withstand any shock was shattered by a steep fall in consumption in the second half of 2008. But supply will be falling, too. The Organisation of Petroleum Exporting Countries, the oil cartel, has announced the biggest output cut in its history. High-cost oil projects around the world are being cancelled or delayed.
But the floor under the oil price in a falling market is set by the level at which significant volumes of production become uneconomic. Today that level is about $30-$40, which is roughly the price that existing projects in Canada's oil sands need to cover their operating costs, or that developments in the North Sea need for investment to sustain production. As the industry cools and production costs decline, however, that level will fall, meaning that oil could go even lower. The oil market is inherently volatile, and has made fools out of forecasters many times in the past 12 months. But my best guess is that oil is more likely to end the year below $40 than above it. Ed Crooks
Whose reputation will be made in 2009?
Tim Geithner's. A mildly surprising pick for Treasury secretary, with many pundits suspecting the better-known Larry Summers would be chosen, Mr Geithner, currently president of the New York Federal Reserve, is much more familiar in policymaking circles than to the public. That will change.
As one of the most important public faces of the incoming Obama administration, Mr Geithner will have some initial challenges – not least explaining his part in the decision to let the investment bank Lehman Brothers go bust but to save the insurance giant AIG with a massive federal loan. But he performs well under pressure. The 47-year-old Mr Geithner, who seems destined to have the adjective “boyish” pursue him for the remainder of his career, combines an emollient public manner with a sometimes slightly elliptical eloquence. After eight years in which the US Treasury has often either been criticised or simply ignored, he has a chance to restore its credibility. Alan Beattie
Will Obama's New Deal work?
Yes, if “work” means arrest the recession and hasten an economic recovery. The chief requirement for success, thus defined, is scale. The new administration is preparing a fiscal stimulus of $800bn or more, an enormous sum. As long as the larger part goes to programmes that deliver fast-acting increases in aggregate demand – help for the unemployed, relief for state budgets, infrastructure spending – a stimulus of this size can hardly fail to have an impact. However, the term “New Deal” implies larger ambitions. Franklin Roosevelt's New Deal was fiscally timid and not that successful in ending the Depression – but it built new institutions, permanently altered the demands citizens make on the state and quite transformed US society.
Will Barack Obama's New Deal be seen as a turning-point in that wider sense? Unlikely, but it stands a chance if universal healthcare is folded in. Without an innovation of that sort to rank alongside the creation of the social security system, history will not see a temporary stimulus, however large, as a New Deal to compare with FDR's. Clive Crook