Slower Georgia export growth due to China‘s slowdown and Europe‘s debt woes are dimming the state’s prospects for faster expansion in 2013, Georgia State University economic forecaster Rajeev Dhawan said in his quarterly report.
Georgia outpaced the nation in export growth in 2011, hitting the 20 percent mark. So far this year, though, exports are up only 2.3 percent, reflecting an economic cycle playing out far beyond the state’s borders but with significant effects, said Dr. Dhawan, director of the university’s Economic Forecasting Center.
Chinese exports have been hit by flagging demand in the EU, one of its primary markets, sending shockwaves into emerging nations, especially heavy suppliers of resources and electronic components to China, Dr. Dhawan said.
While Georgia export growth to China is still strong – 17.4 percent to date in 2012 – that figure is only about half last year’s 33 percent rate. And a deeper story can be seen in Georgia’s exports to countries like Singapore, a bellwether for Asian growth, and Brazil, which supplies natural resources to China.
The logic is that if China does well, these countries will also prosper, triggering greater demand for Georgia-made industrial machinery (including computers), airplanes and parts, paper products and vehicles..
But the state’s exports to Singapore have grown by only 5 percent so far this year, as opposed to a staggering 88 percent in 2011. It’s the same story with Brazil, where export growth is at 4.2 percent compared to a 27 percent jump last year.
Germany, impacted by a practical recession in Europe, has less cash to buy Georgia products, leading the country to buy 5.6 percent less from Georgia than last year. The state’s exports to Canada and South Korea have also declined by 1.5 percent and 13.1 percent, respectively.
That translates to slower growth in manufacturing, as more overseas customers generally correlates with increased output and more jobs. Manufacturing accounts for about 9 percent of the state’s total employment base, Dr. Dhawan said.
Other emerging markets are not picking up the slack, if the overseas passenger and cargo revenues from Delta Air Lines Inc. are any indication, Dr. Dhawan wrote in the forecast booklet.
Delta’s sales growth in the Pacific dropped from 20 percent to 5 percent this year, while Latin America declined from 13 percent to 3 percent, he said.
While the state looks internally for growth, the nation is looking for a resolution to the so-called “fiscal cliff,” a combination of tax increases and spending cuts set to take effect in January.
Congress will take a “bungee” approach to the problem, allowing the economy to go fall off the cliff briefly but passing extensions on tax increases that allow it to bounce back to find a solution later in the year before things go splat, Dr. Dhawan said.
If the federal government makes moves that amount to a “credible down payment” on deficit reduction and Europe sees a resolution to its debt crisis, 2014 will see a return to growth rates of nearly 3 percent, he projected.
As for 2013, he considers it “dead and gone,” lacking an engine to ignite growth amid partisan bickering, a nascent housing recovery that has yet to bring revenue increases for local governments, and a disconnect between a brighter consumer mood and declining business investment.
The good news is that the second half of the year will end in the resolution of the fiscal cliff, China speeding back up and Europe getting its act together.
“The resultant upturn in the world economy will lead to an increase in Georgia’s exports that will have a positive ripple effect across Georgia’s key economic sectors,” Dr. Dhawan said, predicting that Georgia would add 55,300 jobs in 2013 and 77,300 jobs in a more robust 2014.
The bad news is that if Congress strikes a “grand bargain” that assuages financial markets in the latter half of 2013, consumers will feel the pinch. Government will likely remove the payroll tax deduction and other “goodies” Americans have become accustomed to receiving, he said.
“Next year your taxes are going up one way or the other. The issue is how much and which way,” Dr. Dhawan said.
For more information, click here to visit the Economic Forecasting Center’s website.