Pandemic’s effects will linger on state’s growing economy

The state’s economy could grow by 2.6% in 2021, a good clip that will not pull the state out of the hole created in 2020 by the coronavirus pandemic, according to a report published yesterday by economists at The University of Alabama.

“It will be a couple of years before we get back to pre-pandemic level economic activity, or perhaps even longer for some sectors of the economy,” said Ahmad Ijaz, executive director of the Center for Business and Economic Research at UA. “We are in a sort of recovery mode right now, but, hopefully, we will be in expansion mode by the second half of the year.”

The 2021 Alabama Economic Outlook, available for free on the center’s website, reports the vibrations of the economic shocks from the pandemic will be felt for years, even with economic interventions from the federal government.

UA’s Center for Business and Economic Research, part of the Culverhouse College of Business, has produced forecasts of economic activity in Alabama since 1980. These forecasts cover Alabama’s Gross Domestic Product, employment, and income by industry group and are published in the annual Alabama Economic Outlook. Forecast updates are run quarterly. The center incorporates data from the last 30 years, including cycles and recoveries captured over the years, into its statistical and economic models.

Along with annual dives into the national and state economy, including examinations of the five largest metro areas in Alabama, this year’s outlook includes a special look at the pandemic’s effect on the state economy, authored by Dr. Nyesha Black, director of socioeconomic analysis and demographics.

In 2020, the Alabama economy contracted by 2.7%, part of a national halt to record economic growth caused by the global pandemic, according to the report. Prior to the pandemic, the state was growing at a rate that bounced from 1.5% to 2%, Ijaz said.

Alabama’s real GDP, the total value of all goods and services produced in the state, will reach about $200 billion, according to the report. However, that is projected to remain below the 2019 level of about $201 billion until 2022.

Nonfarm employment in Alabama is projected to rise by 1.5% in 2021, reversing the 3.4% decline seen from Sept. 2019 to Sept. 2020, according to the outlook.

Along with continued economic issues from the pandemic, unresolved trade disputes, particularly with China, could exert downward pressure and constrain economic recovery this year, according to the report.

Sectors driving growth in Alabama’s economy in 2021 will be the financial services industry, residential construction, auto and other transportation equipment manufacturing, along with professional and business services in the scientific and technical services, waste management and administrative services.

Considering the slumping economy, state tax revenues fared well. For the fiscal year ending in September 2020, state tax receipts rose by 5%. With the expected recovery of the state economy, the center’s outlook projects tax revenues to grow by 3.8% this fiscal year.

Despite the recovering economy, Ijaz said more federal assistance from Congress and the Federal Reserve is needed.

“Federal intervention would definitely help, especially to some sectors of the economy that employs relatively low-skill, low-wage labor, who have primarily felt the major brunt of the recession,” he said.

(Courtesy of the University of Alabama)