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Dhawan: Economic growth minimal in 2013
by Everett Catts
February 20, 2013 06:45 PM | 6974 views | 0 0 comments | 19 19 recommendations | email to a friend | print
Rajeev Dhawan
Rajeev Dhawan
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The U.S. economy is still strong, but is taking a downward turn, Rajeev Dhawan said.

“I always say we [America] are the cleanest dirty shirt in the laundry basket, but the Europeans are looking pretty clean. If this continues, Europe will be cleaner,” Dhawan, director of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business in downtown Atlanta, said during Wednesday’s quarterly Economic Forecasting Conference on campus.

Dhawan said Congress will wait to the last minute to meet its deadlines of March 1 for sequestration and May 18 for the debt ceiling decision. Sequestration is an across-the-board budget cut of $1.2 trillion in discretionary spending, and the debt ceiling, currently $16.4 trillion, could be increased.

“It’s going to go down to the wire. … The chances of a zero sequestration are very, very low, meaning delaying it for a year,” Dhawan said.

The gross domestic product is going down, Dhawan said, predicting the private GDP to be 1.6 percent and the overall GDP to be 1.2 percent in 2013, because of federal spending cutbacks.

Regarding the 2 percent payroll tax increase that started in January, Dhawan said it “will be felt by lower revenues and will trickle down through less consumer spending.”

As for the world economy, Dhawan said of his top seven risks for 2013 and beyond, after a possible sequestration/debt ceiling impasse, the next three are global issues: “China fails to jump-start its growth, the Eurozone bank run renews after [German Chancellor Angela] Merkel’s reelection in September and the Mideast erupts in flames (Syria/Iran) that causes [the] Brent crude price to touch $150 per barrel.”

Regarding gas prices in the U.S., which spiked from $3.29 Jan. 20 to $3.79 Wednesday, according to gasbuddy.com, Dhawan said he sees gas and oil prices dropping.

In Georgia, he predicts the economy to remain steady, with job growth increasing 1.7 percent in 2013, or a total of 63,200 jobs. The state unemployment rate will go from 8.6 percent this year to 8.2 percent the next and 7.5 percent in 2015, Dhawan foresees. Metro Atlanta’s employment base will go up by 38,900 jobs (1.5 percent) in 2013, 53,100 (2.1 percent) the next year and 63,200 (2.5 percent) in 2015, he predicted. Dhawan said the state’s information and technology industries will see a lot of growth.

As for the local area, Dhawan mentioned in his report recent and planned developments in Buckhead and Sandy Springs.

He said home prices are going back up, according to the Case-Shiller Home Price Index, citing a chart showing sales going up to about 3 percent in metro Atlanta in the last quarter of 2012. Dhawan predicted housing permits will grow by 9.9 percent, with multifamily units increasing by 14.9 percent this year.

Georgia aerospace industry has 250 companies employ 250,000 workers in the state. The sequestration hurts the industry, including Lockheed Martin Aeronautics’ Marietta plant, which in December announced it would move 560 jobs to its Fort Worth, Texas, facility to save $250 million over five years. Georgia currently ranks sixth in the nation in aircraft manufacturing, according to data provided by Georgia State.

During a question-and-answer session following Dhawan’s speech, Jagan Iyangar of UNC Systems asked if taxing more through the Federal Insurance Contributions Act (FICA) all paychecks and not just the lower- and middle-class ones would improve the economy.

Dhawan replied, “FICA goes to Medicare and Social Security. But it so happens is the government writes an IOU for pulling money out of this fund. The only way to reduce it would be to make the population live longer.”
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