New U.K. relationship may boost state's economy: Deal announces UK Trade & Investment to establish base in Georgia

Gov. Nathan Deal and Lord Stephen Green, Minister of State for Trade and Investment, announced today (May 18) from London that UK Trade and Investment (UKTI) will establish an office in Georgia to promote trade and foreign direct investment opportunities between the United Kingdom and the state.

“The United Kingdom is and will remain a strong business partner for the state of Georgia. The ties that bind us grow stronger each year, benefiting both economies,” said Gov. Deal. “In this mission to the United Kingdom, I hope to build on our firm foundation of friendship and trust to further opportunities that will create jobs and profitable investment opportunities.”

UKTI, part of the British Government, helps U.K.-based companies succeed in international markets and overseas companies bring high-quality investment to the country. The UKTI will be co-located with the British Consulate-General in downtown Atlanta. An officer is in place temporarily for the months of May and June to undertake preparation for the launch of the full-time trade office opening in early July with a team of two full-time trade officers. UKTI has been operating in Georgia through regular visits of trade officers from its Miami location.

“Trade and investment is at the heart of the UK’s growth strategy and we see great prospects for further growth of British business links with Georgia and across the Southeast,” said Lord Green. “That is why we are pleased to announce today an expansion of our UK Trade and Investment team in Atlanta to further develop these opportunities to the benefit of jobs in both our countries.”

Deal and Lord Green made the announcement during the governor’s first international mission since taking office. His visits to Liverpool and London are helping develop strategic partnerships with the United Kingdom to support job growth in both countries.

“The British government is delighted to be hosting Gov. Deal on this visit. The governor’s visit will help to advance additional opportunities to expand this successful economic partnership to the benefit of both our countries,” said Her Majesty’s Consul General, Annabelle Malins, who is accompanying the visit.

“We do a lot of business in and with the U.K. and establishing the new trade and investment office is a natural outgrowth of that relationship,” said Chris Cummiskey, commissioner of the Georgia Department of Economic Development, who is traveling with Deal on the mission.

The United Kingdom ranks as the sixth-largest export market and eighth-largest import market for Georgia. The state exported nearly $990 million there in 2010, with top exports including electrical machinery, wood pulp, aircraft or spacecraft, paper and machinery. Imports from the U.K. totaled close to $2.3 billion and consisted primarily of pharmaceutical products, nonrailway vehicles, electrical machinery, machinery, and aircraft or spacecraft.

More than 100 Georgia companies have operations in the U.K. and around 565 British facilities operate in Georgia, including 110 manufacturing locations. These U.K.-affiliated companies employ close to 35,000 Georgians. Through the Department of Economic Development, Georgia maintains both a business office and a tourism office in the U.K.

This program follows a series of high-level visits: Mayor Kasim Reed of Atlanta visited London in November, U.K. Minister Alistair Burt visited Georgia in December and a Liverpool delegation led by the University of Liverpool visited Georgia in January. Daily flights between Atlanta and London operate out of Hartsfield-Jackson Atlanta International Airport.

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Stable home prices key to thwarting deflation, double-dip recession

Deflation and an ensuing double-dip recession can be avoided if recently stabilized home prices don’t fall again, said Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.

In his quarterly Forecast of the Nation, released today, Dhawan said that the “D” word (deflation) is being heard more frequently because of factors such as the slowing of private job creation, yo-yoing retail sales, falling core CPI inflation (inflation excluding food and energy costs), and a rapidly falling 10-year bond yield, now below three percent.

“Consequently,” said Dhawan, “what happens to home prices over the next few months will be critical to consumer confidence. It will affect their spending decisions, especially for big ticket items. This, in turn, will send a signal to CEOs about whether or not to ramp up investment and hiring plans, which then will determine potential consumer income growth and, ultimately, the next round of spending.”

The importance of home price stability is also evident from the fact that one-third of the CPI Index derives from housing or shelter costs. Said Dhawan, “If we take shelter costs out of the core, there is no deflation. Hence, if home prices plunge again, spending power will be sapped, resulting in further price declines that will manifest as deflation leading to a double-dip recession.”

The good news, said Dhawan, is that the growth rate of investment in equipment and software, a precursor of job growth, has been in double digits for the past nine months. Sustaining that pace will depend, said the forecaster, “upon what happens with the currently polarized political atmosphere, costly unpopular reforms and high fiscal deficits causing uncertainty over the tax structure in coming years.

“Still,” Dhawan concluded, “the expectation that housing prices will rise only about 10 percent over the next five years (according to the July MacroMarkets home price survey) has kept consumer confidence flat, illustrating again why home prices are so critical to future growth.”

Highlights from the Economic Forecasting Center’s National Report

Real GDP growth in 2010 will be 2.8 percent for the year. Due to a rollback in government spending and subdued spending by consumers, it will decelerate sharply to 1.9 percent in 2011. In 2012, the real GDP will grow at an improved rate of 2.7 percent. Consumption growth will remain subpar throughout the forecast period, barely reaching 2.2 percent in 2012.
Inflation will be 0.8 percent in the second half of 2010, 1.3 percent in 2011, and will increase to 2.1 percent in 2012. Rate hikes will be on hold until late 2011. At that point the Fed will be aggressive with hikes, quickly raising the target rate to 3.0 percent by mid-2012, as core inflation gets closer to 2.0 percent.
Expect the 10-year bond rate to rise in the coming months to make for an average of 3.4 percent in 2010. It will rise further to 3.9 percent in 2011 and to 4.5 percent in 2012. The fiscal deficit will be 10.0 percent of GDP in 2010, moderating to 6.5 percent in 2012.
After growing by 14.3 percent in 2010, investment in equipment and software will decelerate to 10.1 percent in 2011. In 2012, the category will expand by 10.7 percent. Job growth will increase from the current pace of 100,000 in 2011 to 130,000 in 2012. Unemployment will remain consistently above 9.0 percent.
Georgia and Atlanta to Exhibit Quasi-Growth Prospects
Dhawan said that swings in the national economy, a cautious corporate sector and tempered consumer spending due to weakened prospects for increases in property values will lead to “quasi-growth” prospects locally.

In his Forecast of Georgia and Atlanta released today, he said that factors that reducing income potential going forward include yo-yoing retail sales, weak consumer confidence affecting business investment, and a lack of credit, particularly for smaller-sized corporations, due to continued fallout from the subprime crisis.

“The inability of banks to make loans continues to hamper construction at all levels,” said Dhawan, who added, “Big value projects are missing from the local growth picture. The same is true on the residential side, where many small developers are gone due to an inability to sell unfinished homes.” At the current permitting rate of about 6,000 annually, Atlanta has enough developed lots to build for the next 20 years, he said.

Despite this, housing permits have risen sharply in the last six months, “but only,” said Dhawan, “because people are doing major renovations rather than developers building big multi-family projects. Even with that,” he said, “actual permit levels are one-tenth of what they were at their peak in 2006.”

Things are not much better when it comes to government, which was hit hard in 2008. State government has seen some growth in collections due to a rebound in spending and tighter controls. At the county and city levels, however, the drop in home values has led to sharp declines in collections.

“The corporate sector,” said Dhawan, “has added jobs nationally in the last six months, but growth at the local level has been minimal.” In Georgia the sector has been aided somewhat by the opening of the Kia plant in West Point, the building of a new facility by NCR and, to a lesser extent, planned development of green-tech jobs.

Dhawan said to look for job gains in Atlanta to number only 3,700 for calendar year 2010. Job gains will rise substantially to 46,300 (including 13,800 premium jobs) in 2011 and 55,300 (14,300 premium jobs) by 2012. Unemployment rate, however, still remains above 9.0 percent even in 2012.

Highlights from the Economic Forecasting Center’s Local Report

Georgia will gain only 5,000 jobs in calendar year 2010. In the 2011 calendar year, the recovery pace will pick up somewhat with the creation of 60,300 jobs (including 18,100 premium jobs). Job growth will be stronger in calendar year 2012; 78,300 jobs will be created (with 17,200 premium job gains).
By year’s end, Georgia's unemployment rate will have increased modestly by 0.6 points to 10.2 percent. In 2011, unemployment will decrease slightly to 9.7 percent. In 2012, it will decrease further to 9.2 percent.
Atlanta's housing permits will increase in 2010 by a strong 39.9 percent, with both single and multi-family permits posting significant increases. Permit activity increases by 28.9 percent in 2011 and will grow by a robust 47.1 percent in 2012.
Nominal personal income in Georgia will rise by 3.0 percent in 2010, followed by an increase of 4.1 percent in 2011 and a decent increase of 4.8 percent in 2012. Georgia’s total tax collections are expected to increase by 3.5 percent in FY11, followed by another rise of 5.0 percent in FY12.

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