business

The Inside Scoop on 2006

The economy keeps chugging along, the housing bubble develops a slow leak, Apple surprises again... You read it here first

"Tis easy to see, hard to foresee," observed Benjamin Franklin in Poor Richard's Almanac 270 years ago. He got that right. Prognosticating, even by the most knowledgeable experts, is a chancy endeavor (see BW Online, 12/13/05, "The Year's 10 Worst Predictions"). Heck, take a look at our 2005 predictions from this time last year. At least we called economic growth in 2005 about right.

So is that going to stop us from gazing into our crystal ball for 2006? Not a chance. Here are a few things the staff of BusinessWeek and BusinessWeek Online think will happen next year -- or at least could happen. See if you agree:

• The economy, which is expected to show 3.7% growth when the final numbers for 2005 are in, will continue to grow at around 3.3% through the end of 2006. The jobless rate should also edge down by yearend 2006 to 4.9% from 5% now.

• A year from now, the Dow Jones industrial average, now trading in the 10,800 range, will be around 11,500, as inflation remains in check, corporations keep spending on technology equipment and on mergers, and earnings rise at a slower but sustained pace. The wild cards: Higher energy price or a slumping housing market could make the markets volatile.

• The Federal Reserve will lift its target rate to 4.75% by spring, up from 4% now, but that will be it for rate tightening in 2006. The yield on a 10-year Treasury note will rise to 5%, from about 4.5% now, by yearend 2006.

• Oil prices, still in the $60-a-barrel range, will fall below $55 by yearend 2006.

• The housing bubble will develop a slow leak, but no pop. Mortgage interest rates will continue to slowly creep up, and some valuations in major cities will drop slightly (see BW, 12/26/05, "Where to Invest").

• Germany will regain its status as Europe's growth locomotive next year, chalking up a GDP rate of 2% or better, vs an expected 0.9% for 2005. Tops for 2005: Spain with 3.4%, followed by Britain (1.6%) and France (1.5%) (see BW Online, 12/28/05, "A Better Tomorrow for the EU").

• China will revalue the yuan up by an additional 5%, after the modest 2.1% revaluation in July, in a gesture to appease U.S. trade hawks.

• India will move beyond outsourcing software and systems management into realms such as medical design.

• The New Rich of India and China will continue to develop a taste for building homes in "McMansion" styles reflecting their own distinctive national architectural tastes.

• Conservative Shinzo Abe will replace Junichiro Koizumi as Japan's Prime Minister when Koizumi's term as LDP President expires in September, 2006 (see BW Online, 9/14/05, "The Man to Watch in Japan").

• In a gesture toward cultural modernization, recently crowned King Abdullah of Saudi Arabia will grant the Kingdom's women the right to drive on Saudi highways.

• Surprise move by Apple (AAPL ) next year: Steve Jobs & Co. will introduce a computer that brings music, video, and games into a seamless digital entertainment unit for living rooms. It will prove to be a hit, but not quite another iPod (see BW Online, 12/29/05, "A Tough Act to Follow").

• Surprise deal of 2006: Google will acquire Vonage (see BW Online, 12/28/05, "10 Deals the New Year Might Bring").

• Faced with rapidly emerging economies in China, India, and Eastern Europe, America's top B-schools will be forced to come up with ways to weave global issues into their traditional coursework. International studies will become mandatory at the best schools (see BW, 1/9/06, "China's B-School Boom").

• By the end of 2006, a full line of Jim Cramer toys and action figures will be available for sale on the Internet (see BW, 10/31/05, "The Mad Man Of Wall Street" ).

• The New England Patriots will shock the football world and win their fourth Super Bowl in five years in February.

• The Anaheim Angels will win the 2006 World Series.

Have a happy and prosperous New Year.

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