University of Connecticut economists believe that strong exports will help keep the state out of recession in 2008 and 2009, but they see tough obstacles to maintaining steady growth longer term.
The latest economic outlook by UConn’s Connecticut Center of Economic Analysis predicts that the state will see modest growth this year and next before growth picks up in 2010.
Connecticut’s real GDP increased from $183 billion in the fourth quarter of 2007 to $185 billion in the second quarter of 2008.
“We always felt Connecticut was going to avoid [recession],” said Peter Gunther, the center’s senior research fellow.
UConn economics professor Fred Carstensen said Connecticut could even escape with the mildest downturn in the country, excluding oil producing states.
The CCEA forecast has Connecticut losing nearly 10,000 jobs in the next two years, mostly in construction. But that’s way below the previous job loss estimate of 24,000.
Fewer Job Losses
“We lost 160,000 jobs in the early 90’s,” Carstensen said. “If we can get through this with a loss of 10,000 to 15,000 jobs, that’s an infinitesimal amount.”
Rapidly increasing output in manufacturing is offsetting the construction slowdown.
Durable manufacturing is expected to grow by 4.5 percent this year after a growth of 6.6 percent in the first half of 2007, according to the most recent federal statistics.
“We think that the growth comes from Connecticut’s relative increased reliance on export markets, and we’re doing better than the rest of the country,” Gunther said.
But Carstensen cautioned that the state’s export-driven manufacturing rebound could be short-lived if the dollar strengthens or if inflation rises sharply.
“The competitive advantage from the weakened dollar in exports could decrease very rapidly,” he said.
“If there’s inflation, then it’s going to cost more to produce and your advantage is gone,” Carstensen added. “We do find it encouraging, though, that we see the state’s economy growing by the end of the forecast.”
Despite a few negative indicators, Gunther maintains that the state has navigated stormy economic seas well so far, describing the likely end result as a “soft landing” and a “reasonably good outcome.”
Keeping Young Professionals
The economists agree that Connecticut’s main worry — for business and political leaders — is not about the Connecticut of today, but the one of the future.
“As long as the financial services sector doesn’t implode, Connecticut is doing remarkably good right now,” Carstensen said.
“The problem is the Connecticut 10, 15, 20 years from now when employment is shrinking and we have a lot of old people who are demanding state services,” he explained.
The public policy response to the challenge, Carstensen asserted, should be a drive to create new businesses and new jobs for young professionals to prevent them from fleeing the state while in their twenties.
