Gazing into the crystal ball it seems oil, Germany, spending, unemployment, exchange rates and a few other odds and ends are likely to prove crucial in the new year, writes Cliff Taylor.

Oil Prices: Prices have moved steadily upwards in recent months to the high $20s, largely due to expectations of war in Iraq. Iraq is not currently a major producer - it exports about two million barrels per day under a deal with the UN, less than 1 per cent of total world supply.

But it is the country with the second biggest proven reserves of oil, (after Saudi Arabia), meaning that what happens in the months ahead has significant implications for the long-term future of oil supplies. Market analysts believe oil prices could move sharply upwards to $35 plus for a brief period just before, or during the initial days of, any war.

But provided their signals are that the war will be brief, they believe prices could very quickly move back down to current levels - or lower if the prospect of Iraqi oil coming fully back on world markets becomes realistic.

But - and there is always a "but" with oil prices - there is huge nervousness that the conflict in Iraq could spread through the Middle East, either militarily or diplomatically. Any resulting cut in supply would, of course, lead to a more sustained rise in prices, with very significant implications for economic growth prospects for the year.

German economy: The state of the German economy is now of real concern. It looks like it will have grown hardly at all this year with prospects poor for 2003.

Leading German forecasters expect the economy could grow by as little as 0.5 per cent next year, with one describing the outlook as "morose".

Confidence is low after a series of tax hikes which followed the general election earlier in the year (sound familiar?) and German businesses are moving to lower cost locations in Eastern Europe.

The Schröder government appears unable to get to grips with the situation, leading to a crisis of economic confidence and even whispers of a slump into a deflationary period. This should certainly mean euro interest rates will remain low next year, but the poor performance of Germany will act as a brake on the entire euro economy next year.

Consumer Spending: Can the Irish consumer hold in during 2003? Consumer spending growth has helped drive the economy over the past few years.

This trend has been supported by the sharp rise in the total number of people at work - which have risen by some 400,000 since 1997 - and by increasing real disposable income.

Now both of these trends are coming to an end, with employment likely to be static next year and most households expect little or no rise in real disposable income.

The question is whether Irish consumers feel suitably enriched over the past few years to keep on spending. If they do not, then growth here could be lower than the 3.5 to 4 per cent GNP rise which optimists are forecasting.

Unemployment: The economy has been close to full employment, with the unemployment rate dropping below 4 per cent at one stage. It has since climbed back, however, to just over 4.5 per cent and looks set to top 5 per cent next year.

Jobs growth in the private sector will be slow, at best - the most recent figures show a worrying small fall in private sector employment in the third quarter of this year. Manufacturing has been actually shedding jobs.

Meanwhile the Government has pledged no jobs growth in the public sector and is actually embarking on a programme to reduce numbers by 5,000 over three years.

A key indicator next year will thus be whether total employment can continue to rise.

Euro exchange rate: This will be crucial for Irish business next year.

Any sustained strengthening of the currency against the US dollar and/or sterling could hit competitiveness and damage export prospects.

Currency forecasters cannot agree on the likely trend, caught between the impact on the dollar of the possible war in Iraq and the large US current account deficit the drag on the euro from the ailing German economy. Many forecasters expect a gradual upward trend in the euro against the dollar next year - but experience suggests that currency forecasting is the most dangerous of businesses.

And some more: There are, of course, plenty of other factors likely to prove important. Keep an eye on the Irish inflation rate, likely to spike up to 6 per cent in January, due to the Budget. There will also be a close focus on industrial investment trends. Growth and exports have been driven for some years now by the multinational sector.

If the US does start to move out of recovery in the second half of the year, it will be interesting to see how much of the next wave of foreign investment comes here, compared to other lower-cost centres in Eastern Europe. And finally, we can never forget global trade. The Doha Round, under the auspices of the World Trade Organisation, is stuttering into life.

Proposals are due to be tabled by the EU shortly on key issues including agriculture, to pave the way for a big meeting in Mexico next autumn. If the round broke down, it would be a blow to world confidence.