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November 20, 2002 (ATLANTA) -- While the rate cuts by the Federal Reserve has served as "preemptive strikes" to help keep the country out of a major depression, some type of fiscal stimulus coupled with the resolution of war uncertainty in Iraq will be needed to spur growth in the second half of 2003, according to the Forecast of the Nation (November 2002) released today by Dr. Rajeev Dhawan, director of the Economic Forecasting Center at the Robinson College of Business.
Dhawan says that this growth push will get an extra kick if Congress passes any kind of tax reforms and breaks, which will make for a very conducive climate for investment and growth.
"The general perception is that Republicans are more "business friendly," said Dhawan. "Now that the balance of power is shifting to the Republicans, it is likely that some sort of tax relief package is in the cards for businesses and possibly individuals as well.
However, Dhawan warns that tax cuts and increased defense spending from a war with Iraq may not be enough to put the country back on the right track.
"The missing ingredient is luck or favorable shocks - one is the resolution of geopolitical risks and the other is the domestic political will," says Dhawan. "We're seeing it now in Japan, they've dithered for so long that even if there is a political will the economic cost is prohibitive. Their garden-variety fiscal stimulus programs helped to some extent in the mid 90's, but given that their basic problem is lack of separation of bad management from its ownership of assets, they have remained in an economic funk."
Dhawan does believe that we will fare better than Japan, however he says we still have some hurdles to overcome including a decrease in consumption due to a drop in consumer confidence.
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Highlights from the Economic Forecasting Center's national report:
- Real GDP will increase by 1.1% in the fourth quarter of 2002. The economy will continue its anemic yet steady pace in the first two quarters of 2003, with 1.6% and 2.1% in the first and second quarters respectively. Expect an acceleration of growth in the second half of 2003 with 2.9% and 3.8% growth in the third and fourth quarters. It will post a solid growth in 2004 when the economy grows by 3.4%.
- Notwithstanding a cooling economy last year, core inflation rose from its 2.4% rate in 2000 to be 2.7% in 2001. It will, however, moderate slightly to 2.3% in 2002, followed by 1.4% and 2% in 2003 and 2004.
- The unemployment rate will rise to the 6 Ð 6.2% level for the remainder of the year. Thus, the unemployment rate will rise from its 4.8% annual average in 2001 to 5.9% in 2002 and 6.1% in 2003 before coming down to the 5.6% level in 2004.
- Fixed investment will fall 3.1% in the fourth quarter. It will increase moderately in the first quarter of 2003 by 0.5% and 2.2% in the second quarter. Investment will pick up speed in the second half of 2003, when it grows by 6.2% and 9.1% in the third and fourth quarters.
Georgia Lags National Recovery by Three Months -- Job losses in Georgia will total 52,000 by the end of 2002 with Atlanta accounting for 80% of all jobs lost. In 2003 Georgia will add 38,000 jobs (30,000 in the Atlanta metro area) and by 2004 the state will gain 85,000 jobs - 50% of which will be in Atlanta, according to the Forecast of Georgia and Atlanta (November 2002) released today by the Economic Forecasting Center at Robinson College of Business.
While this rate of job creation seems positive, Dhawan says that it is still 40% less than the job growth pace Atlanta enjoyed in the 90s.
"The three pillars of regional growth in the 90's -Tourism, Transportation and Telecom - are still hurting badly," said Dhawan. "Passenger traffic at major airlines is still down 10% or more, convention business is slow and hotel occupancy may have recovered but room rental rates are falling sharply."
According to the report, metro Atlanta is also feeling the sting in the office space, high-end home and the condo markets. Inventory in high-end homes is running above 20 months, condos are sitting on the market longer than before and office vacancy rates in the metro area are the second highest in the country.
"All this reflects the damage from jobs lost so far," says Dhawan who says that the unemployment rate will continue to hover around the 5% range through the recovery in late summer and than stay just below that through 2004.
Highlights from the Economic Forecasting Center's local report:
- Georgia's Real GSP appears to have increased 1% in 2001. GSP gains are expected to slow to 0.9% in 2002 and 0.7% in 2003. Slower job growth will take its toll and personal income gains will be held to 3.2% this year. Personal income is expected to reach a healthy 4.2% recovery in 2003 followed by a strong 6% gain in 2004.
- Slower income gains will be reflected in tax receipts. After increasing a strong 6.5% in fiscal year 2001, tax collections fell by 6.2% in fiscal year 2002. Tax collections are expected to decline again by 5% in fiscal year 2003.
- The service sector posted a better than expected 2.6% gain in 2001 after benchmark revisions and are expected to contract in 2002 by 1.7% prior to recovering to 2.1% and 3.5% growth in 2003 and 2004.
For More Information:
Rajeev Dhawan
Director, Economic Forecasting Center
404/651-3291
Media Contact:
Tammy DeMel
Associate Director, Communications and External Affairs
Robinson College of Business
Phone: 404/413-7078
Cell: 404/702-9743 |
