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January 31, 2011   Columns Articles | Inside UGA | Forecast: Economic recovery will be ‘self-sustaining’…

Forecast: Economic recovery will be ‘self-sustaining’ in 2011

David Dodson

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By David Dodson | January 31, 2011
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Dean Robert Sumichrast traveled the state delivering the Terry College's economic forecast for 2011, which included a warning to business leaders against an overabundance of caution.

"People and businesses are exhibiting an unusual degree of risk avoidance for a recovery that is about one-and-a-half years old," he said at several January luncheon programs. "This is the time to take on some calculated risk if you want to benefit fully from the economic recovery and the expansion that will follow."

Coming out of the recession, Georgia's economy recovered sluggishly, recording 1 percent growth in 2010. The Selig Center for Economic Growth is forecasting that Georgia's economy will sustain the recovery and expand by 2.9 percent in 2011, after adjusting for inflation. The rate of economic growth in Georgia will match the nation's growth rate, which will be the first time in seven years that the state has caught up with U.S. growth.

"As the lingering effects of recent restructuring and the real estate bubble fade, Georgia will begin to outperform the U.S. in 2012," Sumichrast said, adding that the economic forces driving that growth are shifting from the public sector to the private sector.

"We're almost through with government stimulus and inventory building," Sumichrast said. "Going forward, GDP growth will be based primarily on consumer demand, both foreign and domestic. Now that the baton has been passed to the private sector, the economy is no longer on life support. The recovery has become self-sustaining. But due to weak job growth, it's almost certain to continue very slowly."

The Selig Center forecast noted that cautious behavior is evident in the number of major corporations sitting on large cash reserves, in the reluctance of small businesses to hire or otherwise bet on more growth and in the fact that consumers are saving more and borrowing less.

"If my forecast for sustained economic recovery is correct, then too many people are playing it way too safe," Sumichrast said. "Interest rates are at historical lows, and banks are beginning to lend again. The best loans are often made during economic recoveries."

Similarly, the odds of finding a job will improve in 2011, though the state's jobless rate will remain stubbornly high.

"Georgia's non-farm employment will rise by about 1 percent," Sumichrast said. "That will be the first annual gain the state has seen since 2007. Wages will rise by about 1.5 percent. The state's unemployment rate was 10.2 percent in December and will decline to about 9.5 percent at the end of 2011."

The state's fastest-growing industries in 2011 will be business services and the transportation and warehousing industry. And for the first time in many years, Georgia's manufacturing industries will be hiring.

"Many of these new factory jobs will owe their existence to consumers' and businesses' pent-up demand for durable goods," Sumichrast said. "Manufacturers of nondurable goods also will be adding to their workforces, but at a slower rate."

For the U.S. economy, the risk of a double-dip recession is subsiding. If it were to happen, the likeliest culprit would be if the financial crisis re-intensifies and job growth fizzles out. "Plus, despite ample liquidity, the banking system is still not completely fixed," Sumichrast said. "Banks are making some new loans, but bank lending is still contracting nationally."

 

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