State predicts mild recession, stagnant economy in 2023
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Signaling fears of a short-term recession in 2023, state officials predict Indiana’s economy will stagnate next year as federal COVID-19 funding wanes, higher interest rates discourage borrowing and the rising cost of goods and services forces more Hoosiers to reduce spending.
The State Budget Committee released its economic forecast Thursday, projecting GDP growth to drop from around 1.9% in 2022 to anywhere between -0.2% and 0.3% in 2023. The state expects GDP growth to bounce back to 1.8% in 2024.
Consumer spending has remained stronger than expected, said Tom Jackson, principal economist at New York-based S&P Global, although any gains will be limited by inflation and a decrease in disposable income. Personal savings rates have also dropped to “unsustainable levels.”
Payroll gains have been above expectations, which supports short-term growth, but inflation remains problematic, he added.
The Federal Reserve announced a half-point increase in its key rate Wednesday—after four straight three-quarter-point interest rate hikes—as it begins to claw back its efforts to combat inflation. The annual inflation rate in the U.S. slowed for a fifth straight month to 7.1% in November.
Homebuilding, which had rebounded in 2021 and the first half of 2022 to its highest levels since 2008, has suffered in the second half of 2022—in part due to sharply higher mortgage interest rates. Homes sales are also down.
The state’s labor force participation rate hasn’t recovered to pre-pandemic levels and continues to create challenges for employers trying to find skilled workers to fill open positions, Jackson said. Indiana’s rate is about 63%, near the national average.
The news comes as lawmakers prepare to return to the Indiana Statehouse on Jan. 9 to craft a two-year budget and consider legislation on a number of issues, including public health, education and workforce development.
Indiana closed the fiscal year 2022, which ended June 30, with a $6.1 billion surplus, the largest in the state’s history. Republicans say the results speak to the state’s strong economic growth and fiscally responsible spending, while Democrats accuse them of failing to invest in the health and well-being of Hoosiers.