Connecticut’s economy could grow at a rate of 8.1 percent this year, according to a report released Wednesday by University of Connecticut economists, who describe the prediction as both “stunning” and “dubious.”
The Connecticut Center of Economic Analysis released its study Wednesday morning, hours before Gov. Dannel P. Malloy was scheduled to present his two-year budget proposal.
“Preliminary estimates for 2014 show Connecticut growing faster than the national economy and then surging by a stunning (and dubious) 8.1 percent in 2015, before tapering off to 3.2 percent growth in 2016,” the authors wrote. “Connecticut might now be on a strong growth trajectory, driven by biotechnology, aerospace engineering, venture capital, and a significantly more competitive environment. But if history predicts a rosy future, the array of downside risks is unusually long.”
Last year’s projected 4.8 percent increase in output and the creation of 25,000 new jobs combined with uncertainties in the trajectory of fuel prices and the U.S. dollar exchange rate to inform an outlook that is optimistic with reservations, according to the report.
The report is based in part on Real Gross Domestic Product figures from the U.S. Bureau of Economic Analysis that put the state ahead of national growth trends. Initial annual projections for national RGDP growth come in at 2.4 percent in 2014 and 4.85 percent in both 2015 and 2016. In Connecticut, the impressive output forecasts are expected to taper off to 3.2 percent growth in 2016.
The report, titled “Will Connecticut Thrive in an Uncertain World: Exchange Volatility, Shifting Labor Markets, and Collapsing Oil Prices,” was written center’s Forecasting and Analysis Group. Its authors were wary of the bullish GDP predictions for the state.
“We won’t believe it until we see it — it is hard to see where Connecticut has in place the spare capacity to deliver that level of growth,” the economists wrote. “But there now appear to be powerful processes of both internal growth in bioscience and external attraction through co‐location: a major genome sequencing facility coming to Branford; an aerospace engineering firm opening offices in East Hartford; a surge of venture capital carrying Connecticut into one of the top targets measured on a per capita basis.”
A shifting employment situation has become evident in the increase in private-sector service jobs, according to the report. Such service jobs now account for 72.5 percent of all employment in the state, though wages in every service sector, except one, have failed to keep up with national growth or have decreased.
The report’s most optimistic model predicts an additional 44,000 jobs statewide by 2016.
The data in the study are the most optimistic it has reported to date, according to the report’s authors. “But there are unusually large potential downside risks to Connecticut’s economy delivering on that forecast, and the state itself continues to undermine its own future with inadequate public-sector investment, inattention to major strategic opportunities, and poor data,” the report said. “Do we really understand how we are performing and what we might achieve?”
The report drew parallels between technological and political forces at play 100 years ago and those that make it difficult to predict the economic outlook today.
“Few leaders in early 1914 foresaw that within months Europe would be engulfed in the horrors of the Great War, let alone stalemated for years within entrenched quagmires,” the report said.
The current global climate is rendered unstable by groups such as ISIS as well as by economic factors that include the volatility in currency markets and the threatened deflation of the euro, according to the report: “World economies are still fraught with uncertainty, as shifting prices and new knowledge continue to drive unexpected change and new technologies lead to paths never before imagined.”