Political Rancor, Corporate Uncertainty and Global Malaise Will Temper 2013 Growth

Posted On April 9, 2013
Categories Rajeev Reports

Rajeev DhawanCongressional rancor over how to handle the debt ceiling and the indiscriminate spending cuts triggered by the sequester is tempering corporate investment. Those factors, combined with a precipitous drop in exports, have put the brakes on real GDP growth in 2013, which will be a subpar 1.2% for the year – a steep drop from 2.2% growth in 2012.

I peg the statistical drag from federal spending cutbacks at 0.5% of GDP in 2013 – a value that will hold for the next several years. Domestic uncertainty – specifically over the implementation of the sequester and the inevitable showdown over the debt ceiling – is weighing heavily on the U.S. economy and making the private sector skittish about investment and hiring.

Now that the sequester has been triggered, and because lenders will not offer open-ended credit to finance the status quo, politicians will have to send a credible signal to the capital markets that they are serious about controlling big deficits and ballooning future entitlement liabilities. I anticipate that will happen around the third quarter of the year.

The other culprit in 2013’s lackluster GDP is export growth, which will be only 0.8% for 2013 − a drop from 3.2% in 2012 and vigorous 11.1% growth in 2010. The decline can be attributed in part to the contraction of the eurozone GDP. Also responsible: the Chinese economy, which practically stalled last year after the government tried to fight inflation by turning off credit to staterun enterprises, as well as a downturn in Japan. Look for the eurozone to start growing later this year, which will contribute to better export growth in 2014 (4.5%) and 2015 (5.9%).

In calendar year 2012, Georgia added 70,300 jobs

National Dynamics Also Felt in Peach State

The same forces that are tamping down the national economy are also affecting Georgia. But, have we turned a corner at the state and metro level? The answer is a conditional yes.

One reason I couch this positive news in conditional terms is state job numbers. In calendar year 2012, the state added 70,300 jobs, more than double the 32,500 jobs added in 2011. The recovery will continue, but at a slightly lower rate of 63,200 jobs in calendar year 2013 because political uncertainty and a weak global economy are taking a toll.

Export growth, long a bright star in the state economy, has dimmed drastically. After growing by 20.1% in 2011, exports grew by only 2.0% during the first 11 months of calendar year 2012. Any Georgia firm, whether Coca-Cola or Kia, which relies on overseas sales is facing headwinds from the stalled global economy.

One sector that will maintain its picked-up pace is education and healthcare. The sector added 6,100 jobs in the fourth quarter of 2012 and will continue to do well because uncertainty regarding the Affordable Care Act is over. Knowing that the act will not be repealed, many hospitals are gearing up for expansion. I expect the sector to add as many jobs in 2013 as it did in 2012 (11,200).

In 2014, global economic prospects will improve and actions by Washington in 2013 will pay dividends by boosting corporate and consumer confidence. 2015 will see even more gains.

Rajeev Dhawan is director of the Economic Forecasting Center. Dhawan provides economic forecasts for the nation, the region and Atlanta at quarterly conferences. Learn more about the Economic Forecasting Center »