S&P outlook expects Alaska to trail oil peers in recovery
A newly published Outside economic outlook for oil and gas-heavy states backs up what local forecasters have been saying: It’s going to be a long slog back for Alaska.
The April 15 S&P Global report entitled, “U.S. Oil and Gas-Dependent States Are Out Of The Woods (For Now),” concludes that Alaska’s economic recovery from the pandemic is likely to be amongst the slowest in the nation, with Texas being the only traditional oil state to be among the national leaders in near-term growth.
The international market analysis firm believes the national economy will see gross domestic product, or GDP, growth of 6.5 percent this year and 3.1 percent in 2022 after contracting by 3.5 percent last year, but the recovery will be “uneven,” according to the report.
“Without exception, all mineral-producing states were affected by the dual-shock of the pandemic-induced recession and the global energy rout last year, with five of them in the bottom 20 percent of all states in 2020 for economic growth,” the S&P report states.
Alaska’s economy contracted by 4.9 percent last year based on state-specific GDP, putting it 42nd nationally and ahead of other oil states like Louisiana, Texas and Wyoming, but behind the likes of North Dakota, New Mexico and Texas.
According to figures from the Federal Reserve Bank of St. Louis, Alaska lost $4.1 billion, or 7.5 percent of its total economic output last year compared to 2019.
S&P’s authors have pegged Alaska’s growth this year at about 5.1 percent, which would put it 33rd nationally based on the analysts’ projections. That growth is expected to taper to just more than 3 percent in 2022, which would be amongst the slowest growth nationwide.
“By 2022, only Alaska and West Virginia (among resource states) are forecast to rank in the bottom 10 states,” the authors conclude. “States that have a high reliance on mining activity and less diversified economic portfolios may see prolonged economic recovery compared to the rest of the sector.”
University of Alaska Anchorage economist Mouhcine Guettabi said in a presentation earlier this month that the state’s labor market remains “ugly” with little optimism for significant organic growth in the coming years.
The state Labor Department forecasted in January that Alaska this year will recover about 30 percent of the approximately 27,200 jobs lost in 2020 and full recovery to 2019 levels will take several years. Guettabi and other economists also routinely note that prior to the pandemic Alaska was just starting to recover from a three-year recession when most of the Lower 48 economy was strong as well.
S&P analysts maintained Alaska’s AA- general obligation credit rating with a negative outlook in the report, a rating issues roughly a year ago when pandemic restrictions were tightest and domestic oil prices briefly went negative.
A summary of the state’s fiscal situation notes that improved oil prices are helping the state’s immediate revenue situation, but emphasizes that “Over the long term, the state continues to grapple with sustainable budgeting. While total reserves remain very strong, additional revenue sources will be needed as expenditure reductions have been virtually exhausted over the past several years. The governor’s (10-year) plan recognizes a need for new revenues in fiscal 2023, but it is unclear what that may entail.”
Elwood Brehmer can be reached at [email protected].