Expert View: Can Blair stay off the rocks in a stormy election year?

As the US struggles to correct its budget in 2005, it will export its slowdown to the rest of us

Sitting on a "Business Question Time" panel, I was asked what would be my ideal choice of a location to spend Christmas. Realising Barbados was not the desired response, I rashly proffered a "stay at Chequers with the Prime Minister, shaping the intellectual agenda for 2005".

The revelation this week of just who the Prime Minister had on his guest list made me realise what a narrow escape I'd had. I fear Des O'Connor and Geri Halliwell would not have provided quite the intellectual rigour I desired. Let's hope that in planning 2005 at Sharm el-Sheikh, Tony Blair has had more cerebral input.

For Blair needs all the help he can get. As he lay on his Egyptian beach, he must have thought wistfully of his friend George Bush safely home and dry after his own re-election. The Prime Minister's chickens come home to roost in a year when the world climate is far from benign.

In predicting the outlook for the US in 2005, I am tempted to use one of Bush's best malapropisms, the one when he described the Iraq war as a "catastrophic success". For while the US will still grow this year, it will do so at a slower rate, and as it struggles to correct its budget deficits, it will export this slowdown, magnified as ever, to the rest of us. It is already doing this through a weaker dollar, and may in future add a decline in US imports. It would be good if Bush kept his pledge to halve the budget deficit. Good for us that is, but not for the poor underbelly of a divided America likely to suffer still more welfare cuts to get there.

Nor can the UK look for succour from other parts of the world. The future lies in China, but as her authoritarian regime struggles to control the pace of this growth, we will see a pause in 2005. Car sales have already plummeted, and independent estimates of bad loans in the Chinese banking system are up to 35 per cent. As last year's troubles around "labour shortages" in the Pearl River Delta showed, another wild card for 2005 may be social disruption in China.

But while this year will be a story of slowdown, in the States and China it will at least be one of growth, too. Sadly, this year we once more have talk of the European economy teetering on the brink of recession. As a Europhile I wept when I read the update on the 2000 Lisbon Agenda, under which the EU aimed to become the world's most competitive economic area by 2010. Five years in and Europe has gone backwards.

So Mr Blair, you are sailing this ship through some choppy waters. Everything has been gambled on massive increases in public expenditure, financed by continued economic growth. This looks hard to achieve, and keeping within Gordon Brown's fiscal "Golden Rule" will be a tough challenge. Will the Labour Party run out of stealth taxes and hit the consumer head on?

This would be a disaster, as highlighted in the letter before Christmas, signed by 100 business people, warning of the dangers of a return to high taxation. In this competitive world, our rivals have become ever more adept at lowering their tax regimes to attract investment and generate growth. The 1980s gave the UK a highly competitive tax system. On both personal and corporate taxation, this advantage has since been eroded. If correcting Mr Brown's largesse required a further twist of his fiscal knife, we would be in serious danger of throwing away the economic renaissance the UK has enjoyed in the past 20 years.

Given these concerns (and the UK's own 2005 wild card of a potential meltdown in the residential property market), if I had been at Chequers my message to Tony would have been: "Stop Gordon spending now ... and have the election soon." Happy New Year?

Christopher.Walker@tiscali.co.uk