At this time every year, Robert Doll, president and chief investment officer at Merrill Lynch Investment Managers, gazes into his crystal ball and tells investors what the future is likely to hold. For 2005, the forecast isn't particularly inspiring.

In fact, Doll is calling for economic growth to slow, earnings to miss expectations, interest rates and commodity prices to rise, and equity returns to be barely positive.

"We think it will be a 'muddling through' sort of year," he said Tuesday morning at a press conference in lower Manhattan.

"With earnings slowing this year, so will returns -- not to mention the fact that the fourth-quarter rally may have borrowed from the returns for 2005," he said, further noting valuations are relatively high, with the S&P 500 trading at 20 times earnings in 2004 compared to its historical average of 16.

In his annual investment outlook, Doll said real gross domestic product growth in the U.S. should slow to less than 3.5%, as consumer spending softens and capital spending takes a hit from high energy costs, rising interest rates and lower productivity.

Doll thinks consumer spending will rise between 2.7% and 3% this year from a 3.7% pace in 2004, citing an end to fiscal and monetary stimulus. He expects business spending to climb 5% to 8% vs. more than 10% last year.

The global economy is also projected to slow down, with Europe lagging and China continuing to lead the pack, and GDP growth is expected to be around 7%.

Doll believes that inflation will continue to creep up in 2005, thanks to a weaker dollar, high oil prices and rising labor costs. As a result, he said, the Federal Reserve will "show no sign of slowing its campaign of measured one-quarter-point rate hikes." The funds rate should end the year at 3.5% from 2.25% currently and the 10-year note will likely end the year at 5%, he said.

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