Five Big Ifs for 2006

If No. 3: Europe and Japan

If economic growth picks up in the European Union and in Japan, it will take pressure off the U.S. trade deficit. Right now, that's the prediction.

The Organization for Economic Cooperation and Development sees real GDP growth (that's growth after subtracting the rate of inflation) dropping to a still very healthy 3.5% annually in the U.S. next year, with growth holding solidly positive at 2% in Japan and at 2.1% in the eurozone. That would be good news for profits and jobs at U.S. blue-chip companies, a sector dominated by big multinational exporters.

If anything is to go wrong with these economic projections, investors will know by the time June quarterly numbers are reported. The OECD's forecasts show growth rising from the first quarter of 2006 to an annual peak in the second quarter in Japan.

In Europe, growth will continue to accelerate to reach a third-quarter high at 2.2%, the OECD predicts. If instead of accelerating, these two global economies slip back in 2006, the disappointment among investors will take hold with those second-quarter numbers.

If No. 4: Influence of China and India

If growth picks up as expected in the developed world and comes in stronger than forecast in China and India, investors can expect a resumption of runaway commodity prices. Right now, the outlook calls for economic growth in both countries to slow next year from 2005.

The International Monetary Fund and the Asian Development Bank both peg growth at 8.5% in China in 2006, down from 9.2% in 2005, and at 6.8% in India for 2006, down from 7.1% in 2005.

That kind of modestly decelerating growth would be good news for companies competing with China and India for supplies of iron, copper, coal, oil and nickel. But once again, investors are looking at forecasts that project the best of possible worlds: Good growth but not too much growth.