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14 1 The Georgia Economic Outlook 2015 Jeffrey M. Humphreys, Director Selig Center for Economic Growth University of Georgia Georgia's economy will continue to recover from the recession at a moderate pace. The risk of another recession will be lower in 2015 (25 percent) than in 2014, because the massive restructuring of Georgia's private sector is complete. The primary risks likely to trigger a new recession are mistakes in fiscal and/or monetary policies, oil price shocks, and contagion of financial panics originating overseas. The risk of recession is the same for Georgia as for the nation. Our baseline forecast calls for Georgia's inflation-adjusted GDP to increase by 3.2 percent, which exceeds the 2.3 percent growth estimated for 2014. The state's 2015 GDP growth rate will be 0.4 percent higher than the 2.8 percent rate estimated for U.S. GDP. The positive differential reflects (1) projects in the economic development pipeline, (2) strategic shifts in the state's economic development strategy, (3) leverage from the housing recovery, and (4) slightly more supportive demographic forces. he state's nominal personal income will grow by 5.4 percent, which is higher than the 4.7 percent gain expected for the nation. Georgia's nonfarm employment will rise by 2.3 percent in 2015, which exceeds the 1.8 percent gain estimated for the US. The main headwind facing Georgia in 2015 is federal fiscal austerity, especially cuts in federal defense spending. Another weak headwind will be a gradual shift in the stance of monetary policy from accommodative to restrictive. Fortunately, Georgia's employment will grow by 2.3 percent in 2015. If that happens, Georgia will replace all the jobs lost to the recession by mid-2015, or about one year after the U.S. does so. The lack of new business formation is one underappreciated reason why Georgia's job recovery has been slow. Business formation requires cash, and the typical entrepreneur often obtains the funds needed to start, or expand a business by borrowing, using the home as collateral. That's been a problem for Georgia's entrepreneurs because home price depreciation was much more intense here than it was nationally, and because Georgia led the nation in bank failures. The good news is that Georgia's home prices are on the upswing – up about 27 percent (as of mid-2014) from their lowest point. But the lag between the market value of people's homes and their appraised values will continue to restrain lending. Georgia's unemployment rate will average 6.7 percent, or about 0.6 percent lower than the 7.3 percent estimated for 2014. Private sector job growth will be very balanced. The fastest job growth will occur in construction, followed by professional and business services, and mining and logging. Education and health services will see above-average gains. Below-average job growth is expected for leisure and hospitality and manufacturing. Positive, but slow job growth is projected for financial activities and information. In contrast, job losses will continue in the government sector, which is the only major economic sector expected to lose jobs in 2015. Services The forecast indicates that all Georgia's major categories of service-related businesses will expand, with the broader base of growth reflecting the upturn in housing markets, growing demand for information and high technology services, and more competitive economic development incentives. Improving economic