Georgia’s economy, which is largely dependent on the health of the global economy, will not recover until next fall, said economist Rajeev Dhawan, who gave a gloomy forecast last week.
Dr. Dhawan, director of the Economic Forecasting Center at Georgia State University, said foreign investment in Georgia shows promise for the state’s economic recovery, but uncertainty in the global economy will postpone recovery through next summer unless governments coordinate fiscal stimulus programs.
“The short-term pain [of recession] is going to be acute,” Dr. Dhawan said. “In the long-term, we need a bold scenario of coordinated action,” he added, suggesting Canada, the Eurozone, Japan, the United Kingdom and the United States coordinate monetary and fiscal policy actions.
Although unlikely, cooperative efforts would include the European Central Bank agreeing to cut interest rates by 200 basis points and the UK by 150 basis points, as well as the Bank of Japan bailing out faltering Japanese banks and writing off debts, Dr. Dhawan suggested.
He also urged fiscal actions be taken by the world’s leading economies, such as Canada expanding investment tax credits, Germany keeping corporate taxes constant and the U.S. cutting income and corporate taxes.
Foreign investment in Georgia, including Germany-based DaimlerChrysler’s proposed auto plant in Savannah, is a good strategy for economic recovery, Dr. Dhawan said. But the fact that the project is “not yet a done deal,” demonstrates a lack of faith in the global demand for manufactured exports, he noted.
Georgia manufacturers would do well to find niche markets related to defense, including electronics, Dr. Dhawan said, adding that the state’s economic recovery is dependent on the U.S. taking resolute action toward Iraq.
Georgia companies need a clear picture of the size, scope and timing of an impending war with Iraq before they begin to hire employees again or increase spending on new or expanded operations, he said.
If war with Iraq does not happen until the end of 2003, Georgia will experience deflation, as consumers and investors curb spending – thus, deflating prices – until they know with certainty what action President Bush will take, Dr. Dhawan asserted.
Visit www.robinson.gsu.edu/efc for more information or contact Dr. Dhawan at (404) 651-3298.