SALT LAKE CITY — At the start of a new year, there is a sense of new beginning. However, when it comes to the economy, 2013 will be similar to 2012 in many ways. Depending on how you look at it, another year like 2012 is good or bad news. Not surprisingly, Utah's economy is expected to have another good year, barring the realization of any worst case scenarios in the broader economy.

Twice a year the Salt Lake Chamber and CBRE produce an economic outlook. The process of producing the outlook is highly collaborative and insightful. Having the privilege of engaging in that process as an analyst, I thought it would be useful to share some of the highlights of this report, drilling down from the international to local level.

International Level

The global economic landscape remains challenging; however, there are some recent signs of improvement. Continuing effects from the Great Recession, including shifts in the global economic power structure, along with on-going challenges and needed reforms, are combining to create a complicated mix of risks. This environment is causing higher levels of uncertainty, elevated market volatility, and slower growth in emerging markets.

An evolving international landscape is nowhere more visible than in the Middle East. Within the region there are several on-going issues and conflicts that maintain the potential to put energy markets on edge. Furthermore, western powers, particularly the United States are preoccupied with problems at home, taking a more passive role in the region, leaving the Middle East in a more volatile state.

Looking elsewhere, Europe's political, financial and economic challenges are of particular concern, which must continue to be monitored due to their potential to severely disrupt financial markets across the world and consequently, the health of the global economy. It is important to note that worst-case scenarios are not expected over the next several months, provided public unrest does not intervene in policy.

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National Outlook

The short-term outlook for the United States is extremely dependent upon policymakers. By reaching a small deal early in 2013 to avert the full impact of the fiscal cliff, policymakers set the stage for the next battle, which will coincide with yet another big deadline: the debt ceiling. By most estimates, the debt ceiling will need to be lifted by mid to late-February to avoid severe disruption to the operation of government, another credit rating downgrade and even the possibility of the United States defaulting on its sovereign debt. A failure to lift the debt ceiling would carry major consequences for the global, national and Utah economies.

The debt ceiling will most likely be lifted before the U.S. is not able to meet all of its obligations. However, coming budget battles will be fierce and most likely run out the clock just as negotiations over the fiscal cliff were completed at a very late stage.

Furthermore, incentives are very different for both Republicans and Democrats in this round of negotiations. Both parties wanted to avoid raising taxes on the vast majority of Americans during fiscal cliff talks at the end of 2012. Even still, it took last minute negotiations between Senator McConnell and Vice President Biden to reach a deal. This time around, talks will focus mostly on spending cuts, where there is less agreement, with Republicans using the debt ceiling as leverage.

The economy will continue to be affected by policy uncertainty during the coming year. Budget issues being addressed are large, with long-term implications; consequently, they will take a good amount of time to work through. As a result, these large budget battles will be around in varying forms through the near-term.

In 2013, economic growth will also be weighed down by fiscal drag resulting from tax increases on high income earners and the expiration of the payroll tax holiday, which affects most workers. This new drag on the economy is expected to keep growth at similar levels to 2012, with GDP expanding by 1.6% in the United States.

Utah Outlook

Absent any major deterioration in the macro-economic environment, Utah's economy is expected to continue outperforming the broader U.S. economy. While the state's outlook is promising, it is dependent upon an absence of major policy errors.

Provided worst-case scenarios are avoided, job growth in the state will be near long-term averages - around 3%. The tech sector and natural resources, particularly related to energy, will be bright spots in the state's economy creating positive ripple effects across Utah.

Salt Lake County Outlook

As the state's economic hub, Salt Lake County will benefit from trends making Utah an attractive place to do business and invest. Similar to Utah as a whole, Salt Lake County's economy is expected to outperform national averages. Provided major policy errors are avoided, wages and salaries are expected to grow by 5.8% in 2013. Employment across all sectors should expand by 2.5% during the same period.

Over the last several years, large public and private projects helped buoy the metro area's economy. As some of the notable projects such as City Creek Center and the airport TRAX line are completed, it is important to note that this type of lasting infrastructure will pay dividends for years to come. Furthermore, new investments will materialize in the future as the area's reputation attracts new business and investment.

The largest project moving forward will be the Salt Lake City International Airport's terminal redevelopment program. According to the Salt Lake City Department of Airports, the redevelopment along with other capital improvements will total approximately $2.2 billion through 2024. While the project will take years to complete, it is front-loaded; roughly $1.25 billion will be spent in the first stage of the project, to be completed by January 2018. This is another example of a large project that will provide a short-term economic boost, but will also have long-term benefits for the community.

Conclusion

Many of the risks confronting economies around the world in 2013 will be a variation of those faced in 2012 and growth will be similarly sluggish. However, the most pressing issues and risks emanate from Washington D.C. As such, one theme that will continue in 2013 is the idea that politicians are in the economic driver's seat. Current challenges require substantive policy responses.

If political leaders in Washington D.C. can put together a credible package addressing long-term budgetary challenges, markets will rally, uncertainty will lift and capital will be freed. The effect of which would be an improvement in the outlook for the global, U.S. and Utah economies.

*Note: Unless otherwise stated, any data referenced above is from the Salt Lake Chamber/CBRE 2012 Fall Economic Outlook. You can download the report HERE.

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