As the economy wobbles toward the new year, locally and nationally, the financial turmoil in Europe threatens to send it back into recession, metro Atlanta's leading economist said.
Defaults by Greece and Italy are increasingly possible, and the impact of those events would crisscross the world, said Rajeev Dhawan, director of the Georgia State University Economic Forecasting Center, speaking Wednesday on campus at the group’s quarterly conference.
“That can become a global banking crisis,” said Dhawan, the center’s director.
A worsening crisis would also undermine companies that do business on the continent, including those from Georgia, he said.
Exports have been the one bright spot in Georgia’s economy lately, growing 20 percent this year, Dhawan said. And while the fastest growth in trade came with China, “Europe still accounts for almost a quarter of the state’s exports," he said.
The U.S. economy is vulnerable because growth is so tentative, according to Dhawan and other economists who spoke at the conference.
Georgia will end this year with a loss of 20,800 jobs, but is begrudgingly turning that around. The state is now is on track to add 26,800 jobs next year, less than one-fifth the average growth of the late 1990s, Dhawan said.
Next year’s hiring will lower the unemployment rate -- now at 10.3 percent -- only barely into single digits, and just one in four of those new jobs will pay $60,000 per year or more, he said.
In 2013, the economy should do better, adding 56,300 jobs, Dhawan predicted. However, two years of modest growth barely begins to make up for the economic fallout of the recession, when Georgia lost roughly 9 percent of its jobs.
Other dangers also threaten growth: American consumers are spending tentatively, their security shaken by the lingering crisis in housing and the continuing drain of high energy prices.
“An oil shock is still going through the system,” Dhawan said. “Just because we’ve gotten used to it doesn’t mean that it’s not there.”
Threatening to siphon still more from the consumer, the benchmark price for crude oil hit $100 a barrel on Wednesday for the first time in four months.
While Americans are not saving as much as they did through most of the post-war period, they are putting away more than they did during the surge of the housing and credit bubble.
But when consumers retreat, they leave a vacuum in demand, Jim Diffley, chief regional economist for IHS Global Insight, told the conference. “If consumption is going to be less, than something has to take its place if we are going to have a full employment economy," he said.
Housing is still largest drag on the local economy. The number of foreclosures has dropped, but is still painfully high. The result is a freeze on jobs and finances: virtually no new homes are built and an estimated one in four homeowners owe more than their houses are worth.
“It’s not a question of Georgia doing something bad or Atlanta doing something bad,” Diffley said. “It’s a question of being in the middle of a housing bust.”
A look ahead at the economy
The outlook for the region and the nation, according to Rajeev Dhawan and other economists speaking at the quarterly Georgia State forecasting conference:
Jobs: Anemic job creation in Georgia next year, followed by better -- but still modest -- growth in 2013.
Housing: Home prices in Atlanta will not regain their lost ground for at least five more years as foreclosures and weak demand continue to burden the market.
Europe: The deepening crisis in Europe could turn weak U.S. growth into a recession by shaking the financial sector and undermining companies that do business on the continent.
Oil prices: We may be accustomed to $3-plus gas, but it is still a burden on consumer finances -- and oil prices have been rising.
Incomes: Less than a quarter of new jobs will pay more than $60,000, including many who are self-employed and making relatively little.
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