Regional economists unsure of impact of federal cuts

Despite looming federal budget cuts, economists said they are cautiously optimistic that Massachusetts’ economy will continue to grow in the next year because of the state’s improving jobs and real estate markets, according to a new report regional economists.

While the state’s economy is poised for expansion this year, the report said, across-the-board federal budget cuts known as “sequestration” could cut back federal defense, research, and health spending in the state, and such cuts could damage already fragile business and consumer confidence. The cuts are due to take effect in March

“All these sources of federal support are in jeopardy,” economists noted the report, which was published by the University of Massachusetts and the Federal Reserve Bank of Boston. “The state economy depends disproportionately on sectors of the economy that will be hard hit by these budget cuts.”

Advertisement - Continue Reading Below

The Bay State’s key technology sector has important links to US Defense Department spending, which would be impacted by the cuts. Universities in Massachusetts also depend on federal research grants from a number of agencies, including the National Institutes of Health and the National Science Foundation. The state’s health sector receives “considerable federal funding” as well, the report noted.

Earlier reports in the same journal have predicted that the state could lose 50,000 or more jobs if austerity measures take effect.

Economists said that 2012 was a relatively good year for the Massachusetts economy and that unemployment has hovered around 6.5 percent in recent months, much lower than the national rate, which remains closer to 8 percent.

The economists said global economic conditions also appear to be improving, which will help lift sales of Massachusetts products abroad. China’s economy appears poised for growth, the report said, and despite a slowdown in Europe, the economists said they were encouraged that the Eurozone nations have avoided a breakup.

Meanwhile, the economists said Massachusetts state gross product expanded, signaling a “reasonably healthy recovery from the recession,” and an economy that will probably experience modest growth in the coming year.

“Our economy has shown continued resilience,” the report said, “but we must closely track political and economic developments both in Washington and overseas.”

The report is based on the comments of the MassBenchmarks editorial board, and represents their consensus view. Board members include economists from a variety of colleges and institutions including the Federal Reserve Bank of Boston, the Federal Deposit Insurance Corporation, Wellesley College, Boston University and the Massachusetts Institute of Technology.