WisBusiness: Modest growth predicted for state economy

By Brian E. Clark

For WisBusiness.com

MADISON — The Badger State’s economy should experience moderate growth of about 3 percent in 2010, UW-Madison Business School Dean Michael Knetter said Thursday at the annual Wisconsin Economic Forecast Luncheon.

Moreover, he predicted the stock market will gain 8 percent over the next 12 months.

But the recovery is fragile, Knetter warned, and the nation is only one major shock from dipping back into recession.

“We don’t have a big margin of error, so my prediction is that it will be a slow slog to recovery,” he told hundreds of attendees, including Milwaukee Co. Exec. Scott Walker, a GOP gubernatorial candidate, and a handful of lawmakers and other elected officials.

Samuel Kahan, a senior economist with the Federal Reserve Bank of Chicago who also spoke at the Monona Terrace Convention Center luncheon, said he too believes the national and state economies will grow modestly.

“But there are a lot of potential pitfalls out there, including a weak business sector, vulnerable commercial real estate investments and a financial system that is still at risk,” he said. “Fortunately, I believe inflationary concerns are low.”

Knetter said the recession hit the U.S. economy like a “tsunami,” calling it an economic disaster not seen since the Great Depression.  

But he said the recovery began in the third quarter of 2009, though unemployment – at 10 percent nationally – remains higher than it has been since World War II.

Barring any surprises, he predicted the jobless rate will decline to 9 percent this year, which will still leave millions of Americans without jobs.

He said that while Wisconsin didn’t have a housing bubble like Florida or some states in the Southwest, it still suffered from “collateral damage” that affected businesses here.

“We were a bystander to the causes, but agriculture and manufacturers were hit,” he said. “Now we must ride it out and tighten our belts.”

But Knetter warned that returning to the models that were successful in the past is the wrong way to go.

“We must look at long-term national and global forces and appreciate these trends to compete wisely,” he said.

That means that while agriculture, manufacturing and tourism will remain important parts of the economy, the state needs to invest more in the knowledge and service economies.

“If Wisconsin can do that, we can grow as fast or faster than the national economy,” he said.

Knetter also warned against the urge during down times to restrict foreign student enrollment at public universities and trim support of higher education. He said many students from abroad contributed greatly to the economic boom of the 1990s.

“Investment in education produced our technology boom, as did openness to immigration and competition. But it’s easy to demagogue that we are educating Chinese students instead of Wisconsin residents.

“Sometimes I think that Wisconsin is a little too inward focused,” observed Knetter, a Rhinelander native who did undergraduate studies at UW-Eau Claire.  

See a WisBusiness.com report on a preceding credit forum