UA Economists Predict Alabama Economy Will Shrink In 2023

TUSCALOOSA, AL — Researchers at the University of Alabama predict myriad factors will cause the state's economy to shrink in 2023.

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Among these economic factors are persistent inflation, labor shortages, lingering supply chain bottlenecks and international effects from the war in Ukraine.

Indeed, according to the annual economic forecast from the Center for Business and Economic Research (CBER) at the University of Alabama, the state's economic output is projected to decrease 0.1% in 2023 — slightly better than the possible 0.2% slowdown projected for the United States in the report.

CBER Executive Director Ahmad Ijaz cited the latest data in speaking to the likelihood that the Federal Reserve will be able to engineer a soft landing as long as the consumers spending continues to grow.

“The economy, at some point, will slow down,” he said. “Even if we go into a recession, it is only expected to be a mild one, hopefully, but that can change.”

Economists also speculate the slight economic slowdown for the state will follow mild 1.3% growth in 2022 — compared to a strong 5.1% in 2021 as the economy seemed to bounce back from the 3.2% pandemic-induced contraction in 2020.

This "soft landing" would see the Federal Reserve able to avoid an economic recession while raising interest rates.

In looking at the 2022 Alabama Economic Outlook, experts believe consumer spending should grow at a "modest pace as pandemic-era savings dwindle and interest rates eventually dampen the American consumer."

What's more, economic forecasters predict sectors tied heavily to interest rates — such as housing — are likely already in a recession. CBER says this points to an uneven economy across industrial sectors.

Conversely, CBER predicts sectors such as agricultural, forestry, fishing and hunting should experience growth in Alabama, along with several manufacturing sectors such as automobile manufacturing.

Lastly, Ijaz explained that as long as consumers and businesses keep spending, the outlook for state taxes remains good, even if not as flush as the past two years.

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