Trade tension and tariffs are among the major headwinds to Georgia’s economic growth in the coming year, with the prospect of a full-on trade war providing one of few factors raising the risk of recession in an otherwise favorable economic outlook, according to an annual forecast by the University of Georgia’s Terry College of Business.
The state’s GDP will grow by 3 percent in 2019, slower than this year’s 3.5 percent but still well ahead of a projected 2.5 percent rate for the national economy next year.
Of course, that’s barring an intense escalation of trade spats that have been causing considerable uncertainty but have yet to boil over into a more dramatic and far-reaching battle that could affect a larger swath of the economy.
“Trade tensions are high, and nobody really knows how trade war is going to play out. If you were awake this week, we’ve all experienced that, and if you are an investor this week you experienced that,” Terry College Dean Benjamin Ayers said in delivering the school’s statewide forecast.
The stock market dove this week on signals that President Trump’s supposed trade truce with China at the G20 summit might have failed to defuse tensions as much as expected. Though Mr. Trump vowed not to hit China with another increase for 90 days, the two sides have offered different interpretations of their discussion and the path forward.
Georgia is more vulnerable than other states to shocks in the global economy, according to the forecast, given that it’s the 11th largest exporting state and seventh largest importer, with a logistics sector that employs hundreds of thousands.
“Tariffs and other administrative barriers to international trade create uncertainty, raise costs, lower productivity and disrupt established supply chains,” Dr. Ayers said, offering the caveat the positive moves on trade policy, as with the successful renegotiation of NAFTA, could boost exports.
Many of the largest investment projects that serve as a source of optimism for the coming years are run by foreign investors, such as SK innovation’s recently announced $1.67 billion factory in Commerce, Ga., and Hanwha Q CELLS’s solar plant in northwest Georgia. Combined, those Korean projects are slated to create 2,500 jobs.
Partly because of this economic development pipeline and the buildout of many corporate headquarters in metro Atlanta, the broader outlook looks extremely positive, Dr. Ayers said.
In 2019 the state is to benefit from increased defense spending, lingering effects of federal tax cuts and favorable demographic trends. More than 43,000 people are expected to move into the state this year, driving the new home building sector as prices in existing homes peak. Retirees and folks moving for career advancement particularly help. The state should also expect 25,000 people to move in from foreign countries, according to the forecast.
All of the state’s 14 metro areas are set to experience growth, though the rural parts will face challenges due a growing disparity in innovation ecosystems throughout the state. Gainesville and Augusta will fare best next year, with Athens and Atlanta growing quickly while Albany will be indicative of slower growth prospects in rural areas.
“The good news is that none of Georgia’s major economic sectors will lose jobs in 2019,” Dr. Ayers said, citing construction, education, health, hospitality, professional services and mining/logging as the fastest-growing sectors.
Along with tariffs, potential threats to that growth story are rising federal interest rates, which will move from “accommodative to neutral,” and a tight labor market.
The low unemployment rate will have the effect of boosting wages, especially at the lower end of the pay scale, in ways that haven’t been evident since the recovery began eight years ago. It will also help drive productivity growth as companies invest in labor-saving equipment and processes.
But there is a downside: The inability to find workers in fields that require specialized degrees or skills. And immigration policy isn’t helping.
“The stricter issuance of long-term work visas, the H-1B visa, will limit Georgia employers’ ability to attract top international talent,” Dr. Ayers said.
Raphael Bostic, the president of the Federal Reserve Bank of Atlanta, agreed that trade tensions have increased uncertainty, according to a Fed index, but he also said that many appear to currently be “taking this in stride.”
In his national forecast, which also projected 2.5 percent U.S. growth, Mr. Bostic argued for a “risk management approach” toward monetary policy that balances the risk of raising rates too fast and dampening growth with keeping rates too low and overheating the economy.
“Given the current constellation of strong growth, very low unemployment rates, and inflation close to 2 percent, I think that monetary policy ought to be taking a more neutral position, one that neither provides policy accommodation nor hinders growth,” he said.
Considering how difficult it is to determine whether an economy is overheating in real-time, he said, his advice is to “proceed cautiously with a keen eye on the data.”
“I currently think we are within shouting distance of neutral, and I think neutral is where we ought to be.”