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Budget crisis to prolong economic woes in California
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09:19, June 17, 2009

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The dire issues involving California's budget would prolong tough economic conditions in the state throughout the rest of the year, economists predicted on Tuesday.

The economic prospects would remain slim in California despite modest improvements in the national economy, which has moved its condition from "intensive care" to "very sick," said economists at the University of California in Los Angeles (UCLA).

Overall the economic forecast for California was for a very weak first two quarters of 2009, to be followed by very little growth over the remaining six months of the year, the economists said in a study.

The economy in California will not begin to pick up until 2010 and the unemployment figures will likewise remain high until next year, according to the UCLA Anderson Forecast.

California, the forecast predicted, was in for a continued rough ride for the balance of 2009 and was not going to see economic growth return until the end of the year, which would likely be shortly after the U.S. economy begins to grow, said the study.

In California, the worst of the recession is beginning to ease, but any optimism should be tempered by the specter of a state government poised to contract at the worst possible time, said the study.

In his forecast essay entitled, "The California Economy: Are We There Yet? California Vistas From the Middle of the Recession," senior Anderson economist Jerry Nickelsburg notes that Governor Arnold Schwarzenegger was attempting to close the state's 24-billion-dollar budget gap with a combination of "fee increases, forced borrowing from local government, the sale of state assets and budget cuts."

However, the real risk for California is the possibility there will be no budget agreement at all and the "chaotic and inefficient spending cuts that would likely follow would have an even more severe impact on the ability of California to stem the downturn in economic activity this year," Nickelsburg said.

It is clear, Nickelsburg noted, that California is experiencing economic symptoms not unlike the 1980-1981 or 1973-1975 recessions, and that this could well be the worst post-WWII downturn ever experienced by the state. It's also being exacerbated by layoffs which have left recession-scarred workers focusing heavily on their savings.

The expectation is that total employment in California will contract by 3.5 percent in 2009 and will not grow in 2010. Once growth returns in 2011, employment will rise by 1.8 percent, according to the study.

If there is any glimmer of good news for the Golden state, Nickelsburg said, it was that the "correction in the housing market is complete" and the "overshooting, which normally occurs after a correction has appeared."

Nickelsburg also notes that the correction in the retail sector was continuing but the pace of job loss slowed in the second quarter.

The forecasters predicted there was nothing happening in California that would help pull this state out of recession in advance of the nation.

"As economic policy in Washington gains traction, the nation's financial markets heal, and American households begin to spend once again, we will see economic growth," wrote Nickelsburg.


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