Friday, June 19, 2009

UCLA forecast: Budget crisis will impact California's Recovery from recession

The UCLA Anderson Forecast (June 16, 2009) upgraded the condition of the national economy, moving it out of "intensive care" while noting that it is still "very sick." Nationally, the recovery will be slow due to recession-scarred consumers who will focus on their savings, and the dramatic adjustment in financial services, the automotive industry and the retail sector, according to the forecast. The recovery also will be inhibited by the financial excesses of 2003 to 2007 in the form of millions of foreclosed homes and a plague of "upside-down" mortgages.

“What we are perhaps most concerned about is not the timing of the recession's end, but rather the shape of the recovery to come," said UCLA Anderson Forecast Senior Economist David Shulman. "We are forecasting the weakest economic recovery of the postwar era with real growth on the order of 2–3 percent."

In California, the worst of the recession is beginning to ease, but any optimism must be tempered by the specter of a state government poised to contract at the worst possible time, the report said. According to UCLA Anderson Forecast Senior Economist Jerry Nickelsburg, there is nothing happening in California that will help pull the state out of recession in advance of the nation. "California is in for a continued rough ride for the balance of 2009 and is not going to see economic growth return until the end of the year, shortly after the U.S. economy begins to grow," he said. The dire conditions surrounding the state budget will contribute to prolonging tough conditions in California, according to the report.

Overall, the forecast for California is for a very weak first two quarters of 2009, to be followed by very little growth in the last six months of the year, according to the report. The economy will begin to pick up in 2010 and return to more normal levels of growth in 2011.

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