Hazy forecast for Alaska’s economy
Alaska’s economy weathered the Great Recession better than most states, and should hold steady for the foreseeable future. But depending on who you ask, there could be gloom on the horizon.
World Trade Center Alaska brought its annual Statewide Economic Forecast Luncheon to Juneau on Thursday, where two economists offered differing predictions for the state’s fiscal future.
Northern Economics Vice President and Senior Economist Marcus Hartley says he’s a pessimist when it comes to Alaska’s long term economy. But he admits the state has done pretty well in recent years, even as other parts of the country struggled.
“Alaska is kind of an object in motion that stays in motion,” he says. “It keeps kind of chugging along like a freight train.”
In 2012 Alaska’s gross state product was $53 billion, which beat Hartley’s forecast and represents a four percent increase from 2011. Job growth also outpaced last year’s expectations, led by the health care and financial services sectors.
But Hartley says 2013 could be one of the last years in which the state fails to achieve even a small growth. He’s predicting the gross state product will remain flat this year, and he worries $53 billion may be as good as it gets.
“I don’t know if we’re capped out,” he says. “But there’s the beginnings of a trend there.”
The first factor he cites is declining oil production. Alaska currently ranks behind Texas, North Dakota and California on the list of top oil producing states. The price of Alaska North Slope crude is still higher than oil produced in other parts of the country, but Hartley says even that might not be sustainable.
“There’s a pipeline being planned from Texas to California. We also know that there’s plans for shipping oil via rail up to the refineries in western Washington,” he says. “So, there is some concern that oil that’s being produced from the middle of the country will get to the west coast and start to undermine the price that we have.”
Those projects are still several years away, but Hartley says state spending is a concern right now.
He points to a study from the University of Alaska’s Institute of Social and Economic Research that shows the state may need to use savings to maintain services in next year’s budget. The same study predicts a significant deficit by 2023 and recommends immediately cutting the state budget by $2 billion.
“A lot will depend on the taxes, and the budgets, and tax changes, and what goes on,” says Hartley. “But this can be a pretty scary picture.”
If Hartley is a pessimist, Greg Wolf is an optimist.
The Executive Director of World Trade Center Alaska says the state is exporting more goods to other countries than it has at any point in history – an estimated $4.5 billion in 2012.
“That is somewhat down from the previous year, where we were just over $5 billion. It’s about a 10 percent decline,” says Wolf. “But at this level it’s the second highest in our history. So, it’s still a very, very strong performance, near record levels. Not every year can be a record year.”
Wolf thinks the trend of increased exports will continue. He says Alaska has an abundance of natural resources, is located along strategic shipping channels, and is already doing business with emerging markets like China that are buying a lot of goods.
“We have what the world needs, and it’s a world that’s increasingly able to afford what we have,” Wolf says.
China is currently the largest buyer of Alaska exports, followed by Japan, South Korea and Canada.
Part of the reason Wolf is bullish on the state’s future is a belief that China will soon be an investor in Alaska in addition to a buyer of its goods.
“We don’t have any crystal ball, or any inside information about this. All we do is look around to the rest of the world,” he says. “We look at any other natural resource jurisdiction in the world, and you’ll see the Chinese as buyers, and you increasingly, if they’re not there already, you’ll see them as investors, partners. And that’s likely to be a next step for Alaska.”
Wolf says oil, natural gas, and minerals are among the goods emerging countries will need from Alaska, though seafood remains at the top of the state’s export list for now. He says the big question will be if the state can produce those goods.
“If we’re allowed to responsibly develop these resources,” Wolf says, “we’ve got an incredibly bright future.”
This is the sixth year the World Trade Center Economic Forecast Luncheon has come to Juneau. It’s also held every year in Fairbanks and Anchorage.
The event usually attracts a number of legislators in the Capital City. But this year the only elected state official in attendance was Lieutenant Governor Mead Treadwell, who gave opening remarks.