If the state and national economic performance of 2010 had been sustained, Connecticut would be looking for a strong recovery in both total output and jobs by the end of 2013.

So contends the newest issue of The Connecticut Economic Outlook, “Navigating Tumultuous Waters,” from the Connecticut Center for Economic Analysis (CCEA), housed in UConn’s College of Liberal Arts and Sciences.

Released every three months by the CCEA’s Economic Analysis Group, this quarterly issue laments: “The financial chaos of this summer has sucked confidence out of the equity markets. Virtually all economic forecasts have been trimmed back. Realistically, Connecticut will not see the improvements it might have seen.”

Economics professor Fred Carstensen, CCEA’s director, notes that recently released data from the U.S. Bureau of Economic Analysis shows that Connecticut’s real gross domestic product in 2010 grew by more than 3 percent, ahead of the national rate by 7 basis points. Had that trend continued in 2011, the CCEA forecast would have anticipated relatively robust growth from $224 billion in 2011 to $241 billion in 2013, with gains of 55,000 new jobs, he says.

But the financial tumult in American financial markets, the loss not simply of federal stimulus but a contraction of federal expenditures, the continuing crisis in sovereign debts in the European Union, and the apparent weakening of the American economy, “argue for a more sanguine projection for the state,” he says.

Taking account of these hard realities, the CCEA economic team developed a more realistic outlook for the state’s economic performance, using an array of critical economic indicators that included forecasting models for employment and the state’s real gross domestic product.

They also modified the forecast to take account of both the recent labor agreement with state workers, freezing state salaries and significantly increasing employee contributions to the cost of fringe benefits; increased taxes; and the major capital projects to which the State has now committed itself.

“These developments have opposite effects,” explains Carstensen. “The labor agreement reduces economic growth; the capital projects accelerate it. The net result is a modest loss in output and employment compared to the base case, but significantly better than a pure budget cut, which would likely have put Connecticut back into recession.”

Yet even set against the uncertain national economic trends and the debates over the federal deficit, the Connecticut economy has room to grow, he says.

CCEA developed estimates to project Connecticut’s real gross domestic product from the first half of 2011, based primarily on documented growth in total real personal income. CCEA’s approach, prior to adjusting for state policy initiatives, results in Connecticut sustaining a growth rate of 3.3 percent for most of 2011, before falling to 1.7 percent through 2012.

Modest though these results are, subsequently using models to adjust its outlook to account for curtailed benefits to government employees, increased taxes, and major capital projects approved in June, CCEA’s forecast projects employment to rise by 20,000 above current levels, although more jobs might have been created had conditions not shifted so precipitously.

In addition, this edition of Outlook outlines four proposals that CCEA economists believe would put the state on a strong fiscal and economic path, including investing in more efficient lighting, adoption of EVs, driving growth in biosciences, and unleashing the accumulated tax credits. They say these could both help improve the economy in the short run, and help control public sector expenditure in the longer term and reduce private sector costs.

“If these ideas were adopted,” says Carstensen, “we believe it could help accelerate Connecticut’s economic recovery, generate additional jobs, and strengthen its competitive position.”

Carstensen adds that although state policies have a modest dampening effect on the economy, they are benign compared to the alternative – a massive budget reduction. Even with the short-term pain associated with the initiatives to rebalance the state’s budget, he says, CCEA projects that the Connecticut economy’s real output and employment will continue to grow over the next two years.

The new forecast is posted on the CCEA website.