State economist Arun Raha presented the preliminary September economic forecast for the state at a meeting of the Economic and Revenue Forecast Council in Olympia last Friday (September 2).  Raha indicated that a major downward adjustment to the forecast of state revenue for the 2011-13 biennium is forthcoming.

Events since the last forecast in June have turned us increasingly pessimistic about the outlook for the future. It has become clear that global growth is slowing sharply. Revisions to U.S. real Gross Domestic Product (GDP) by the Bureau of Economic Analysis (BEA) show a much deeper recession than previously estimated, and a U.S. economy close to stall speed in the first half of this year. The probability that this fragile recovery gives way to another recession has increased, though it is still premature to say with certainty whether or not it will.

Europe’s economy too is on the verge of recession as its sovereign debt problems appear to be spreading. In many ways its troubles are more intractable than those of the U.S., and will likely be a drag on global growth for quite some time. China and India continue to grow, albeit at a slower rate than before. However, two relevant points need to be made here: first, these economies are not yet big enough to drive global growth without any help from the economies of the U.S., Europe or Japan; secondly both these economies are experiencing wage-push inflationary pressures, which are likely to further slow their growth. Washington’s economy is not immune to this slowdown in the global economy, and in fact is closely tied to global conditions due to our export intensity. So our outlook for economic activity in the state has weakened as well.

Revenue collections to date, excluding August non-Revenue Act receipts for which data are not yet available, are $61 million or 1.8% below what we had expected at this point in the June forecast. Although this is within the range of acceptable forecast errors, I do not want to convey the impression that you should expect a minor adjustment in the September revenue forecast. Each revenue forecast depends primarily on the economic outlook at the time that the revenue forecast is made, and, as I have already mentioned, the economic outlook in September is considerably worse than it was in June.

The new revenue forecast will be presented on September 15.

Here is TVW’s video of the meeting:

Here are links to the handout from the meeting, including Raha’ slides: color and grayscale.