Power prices expected to slow economy

greenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

Power prices expected to slow economy

By BOB ANEZ Associated Press

Little improvement predicted for next year

HELENA - Continued high electricity rates will further slow Montana's already sputtering economy for the next two years, a leading state economist says.

Energy prices, not the national slowdown, will cut in half the state's economic growth this year and allow for little improvement in 2002, Paul Polzin, director for the Montana Bureau of Business and Economic Research, said Tuesday.

In his agency's yearly economic outlook seminar, Polzin said long-term repercussions from the energy crunch are unclear.

"We are just going to have to wait and see how they develop," he said. "For now, we have incorporated negative impacts (into forecasts) for the next two years."

Polzin noted the steep climb in electricity rates already has forced layoffs, shutdowns or cutbacks at mines in the Butte area, a pulp and paper mill near Missoula, the Columbia Falls aluminum plant and a cement plant near Helena.

"Our survey of major manufacturers found many of them worried about the impact of electricity in the next few years," he said.

Polzin predicted Montana's economic growth, as measured by nonfarm income, will be only 1.1 percent this year - only half the rate of last year. By 2002, the growth will rebound slightly to 1.6 percent and reach 2.5 percent by 2004, still less than half the growth recorded in 1998.

In contrast, the nation's economy - based on gross domestic product - will slow from 5.1 percent to 3 percent this year before rising to about 3.5 percent through 2004.

While increased use of information technology and computers has improved the productivity of Montana workers, some traits of the state's economy have not changed, Polzin said.

Montana's geographic isolation from major markets, a small and widely dispersed population and continued dependence on natural resources remain natural drawbacks to growth, he said.

Polzin cautioned that his forecast for Montana has some built-in risks.

It assumes the national economy is merely slowing and not headed for a recession, he said. And that may be a mistaken guess.

A national index of economic indicators shows the probability of a recession in the next 12 months is greater than at any time since the 1990-91 recession, Polzin said. "There is definitely an increased risk of a recession."

Even so, a recession's effects in Montana are hard to predict because the last one in 1990-91 sent few ripples through the state's economy, he said.

In addition to the national economic health, Polzin said other factors affecting Montana's fortunes include a volatile farm sector, decreased timber available from Montana's national forest lands, the state's aging industrial plants and labor shortages.

Polzin mentioned two issues that can affect the health of the national economy - the stock market and tax cuts.

He shied away from taking sides in the debate over whether the stock market is overvalued and due for a crash. But he acknowledged that the Federal Reserve Board has succeeded in avoiding a recession for a decade and kept inflation in check.

"In other words, we appear more successful in managing our economy," he said.

As for tax cuts promised by President Bush, Polzin said the size of them makes them a powerful tool to stimulate a slowing economy. But the question is timing.

Such major proposals take time to move through Congress and the effects of a tax reduction may not show up until 2002 when economic conditions may have changed, he said.

http://www.missoulian.com/display/inn_news/news09.txt

-- Martin Thompson (mthom1927@aol.com), January 24, 2001


Moderation questions? read the FAQ