Alabama economy expected to contract 3.4%, rebound possible

Alabama economy expected to contract 3.4%, rebound possible

TUSCALOOSA, Ala. (AP) — Pounded by the coronavirus pandemic, Alabama’s economy will contract 3.4% this year but could be on a normal trajectory toward recovery by the first half of 2021, according to a forecast by the University of Alabama.

The assessment by economists Samuel Addy and Ahmad Ijaz said the state’s future will rest in part on how government policymakers respond to COVID-19 and how well households weather the pandemic.

But Ijaz told al.com the outlook is better than what was expected in the spring because the state’s decline during the second quarter wasn’t as bad as had been feared.

“When we forecasted it back then, we were expecting the economy to drop by around 6 to 7% for the year with a sharp decline in the second quarter and then a sharp increase in the third quarter, but the drop in the second quarter was around 29% instead of 30 to 35% we were expecting,” Ijaz said.

The state’s economy grew by 2.4% and 2.8% over the last two years but took a downturn once the virus flared up in March.

The analysis provides a look at how the pandemic brought most economic activity to a halt in the spring before some restrictions were lifted. Yet segments of the economy still remain at risk of significant declines, the analysis warned, including travel-related businesses, food service, automotive-related businesses, education and manufacturing.

Almost 1.2 million people, or nearly 60% of state’s non-farm workforce, are employed in such occupations, and how those sectors rebound will determine how the state recovers.

“Furloughs and layoffs will be common. The expected significant declines in economic activity will adversely affect income, sales, lodging, gas, and other tax revenues for both state and local government entities,” the report said.