Economist: Mild recession likely, with mitigating factors

The opening day of the General Assembly’s budget hearings featured a forecast from the state’s fiscal economist that said a mild recession in the first half of this year is “more likely than not.”

Tax collections, one barometer of the state’s fiscal health, were slow for most of 2023, finishing up only 1.6% in the first half of the fiscal year that began July 1. (They actually would have been down 2.5% if the state’s motor fuel tax hadn’t been suspended over the same period the previous year.)

That followed three years of huge growth that helped the state build “rainy day” and “undesignated” reserves of more than $16 billion, enough to cover a half year of the state’s expenses.

“We have mitigating factors that should make any recession a mild one, and we may still avoid one,” Robert Buschman, a longtime Georgia State University economist, told members of the state House and Senate appropriations committees.

Buschman said inflation on goods has slowed dramatically. That’s not true for services, however, which are largely untaxed in Georgia. Employers are still facing high labor costs, he said, and the office market remains down. The Federal Reserve may lower interest rates this year, he said, which could help the housing market. Unemployment could rise modestly, but he said Georgia could weather that better than much of the country.

The state also has those reserves to fall back on after a run of huge surpluses.

Several factors contributed to higher tax collections and the surpluses that followed, including record federal spending, low unemployment, a sometimes hot stock market, huge personal savings, and consumption as consumers paid off debt and bought new products.

Some Democrats, however, say the giant surpluses are a product of underfunding by Gov. Brian Kemp in key areas such as public health care while building up reserves that he can later help dole out on politically popular spending in an election year.

AP 2023 Georgia Gov. Brian Kemp was at the World Economic Forum in Davos, Switzerland, last year, as he was this year, selling the state for development: “It’s like shooting fish in a barrel.”