A Terry College report says the country should avoid the worst effects
While Georgia’s economy made a near-record recovery from the COVID-19 recession in 2022, tighter monetary policy and energy price shocks are likely to trigger a mild and brief economic slowdown in 2023.
This will be a marked change from the 4% growth the country recorded in 2022.
“A recession in 2023 is not inevitable, but it would take near-perfect monetary policy and a lucky break to avoid it,” said Ben Ayers, dean of the University of Georgia’s Terry College of Business.
Some industries — like housing and real estate — will be hit harder than others, but the overall risk of a recession in 2023 is high — about 75%, Ayers told the crowd at the Georgia 2023 Economic Outlook at the Georgia Aquarium on Dec. 9. hosted by the Terry College of Business.
This year, UGA marked the 40th anniversary of the Georgia Economic Outlook report, which was first produced in 1983 to give Georgia leadership a statewide view of the economy. The forecast is based on the Georgia Economic Outlook report by UGA’s Selig Center for Economic Growth.
Despite the predicted recession, the decline in Georgia’s GDP is expected to be small compared to recent recessions and the decline predicted for the US economy.
“Our forecast calls for Georgia’s inflation-adjusted GDP to decline, but only by .2%. So it’s basically going to be flat,” Ayers said. “This is a small decline compared to previous recessions and what we expect for the country as a whole, which is a 0.7 percent decrease.”
Despite the recession, economists do not believe that Georgia will face significant job losses in 2023. The number of jobs in the country will increase by .1%, which is much better than the loss of .5% in the United States.
Georgia’s unemployment rate will average 3.8% in 2023, compared to 3.3% in 2022.
“One of the reasons we don’t expect many job losses is that employers will be slow to lay off workers,” Ayers said. “Employers tried very hard to hire enough workers after the pandemic and knew that there would be a shortage of them on the other side of the recession.”
Interest-sensitive sectors of the economy – construction, financial activities, mining and logging – are likely to face some job losses as manufacturing, hospitality, healthcare and logistics jobs continue to increase.
Overall, the new jobs added in these industries and the construction of economic development projects that Georgia has announced from 2020 to 2022 will offset job losses in the more affected industries.
The one or two punches of housing unaffordability and higher interest rates will result in lower home prices in 2023 and further slow the pace of new housing construction.
Home prices in Georgia have risen 46% since the pandemic began, and Moody’s Analytics estimates that most U.S. homes are about 25% overvalued in 2022.
Housing prices are expected to fall by 12% in 2023. Still, the real estate market is not in crisis, Ayers said.
“Despite significant overvaluation, the underlying supports for home prices are better now than they were during the Great Recession,” Ayers said. “We do not expect a repeat of the housing crash. One difference is that during the post-pandemic housing boom, people bought homes to live in or as long-term investments.
“Furthermore, housing stock is constrained by years of underconstruction, which is the opposite of the situation during the Great Recession, when most markets were overbuilt.”
At the end of 2023, as the economy recovers, new housing construction is expected to pick up rapidly to meet housing demand.
“There will be a shortage of homes in 2024,” Ayers said. “The homebuilding industry may not lead our economic recovery, but it will support and contribute to it.”
Georgia’s economy should be on the road to recovery by the end of 2023 because the fundamentals are strong.
Despite depleted savings rates, household balance sheets remain strong. And the rate of people and businesses moving into the state will continue to provide a solid foundation for economic growth.
Ayers said the Federal Reserve should take a cautious approach to monetary policy this year.
“We believe the Fed will not tolerate the level of economic damage from raising policy rates high enough to meet its explicit 2% inflation target,” he said. “We believe the Fed will settle for 3% inflation. If we are not right, the recession in 2023 will only last for two quarters.”
For more information on the 2023 Georgia Economic Forecast or detailed economic forecast information for specific Georgia MSAs, visit terry.uga.edu/selig or attend the upcoming 2023 Georgia Economic Forecast Luncheon.
UGA economists will conduct Georgia Economic Outlook programs in Athens, Albany, Augusta, Columbus, Jekyll Island, Macon and Savannah through January and February 2023.