Alaska could take a $4.1 billion dollar hit to its gross domestic product in the second quarter of 2020, accounting for both direct and indirect effects of losses to the state’s most vulnerable industries, according to a March 27 report by Mouhcine Guettabi of the Institute of Social and Economic Research, University of Alaska Anchorage. The loss would represent a 7.4% decrease in GDP relative to the second quarter of 2019.
“Direct GDP losses due to the decline in economic activity - not including declines in oil prices - could amount to almost 2 billion dollars,” he said.
The projected losses do not account for reductions in employment and GDP that may occur in the oil and gas industry as a result of much lower prices. Nor do they account for behavioral responses by households and businesses as a result of the federal aid package, Guettabi said, adding that the projections will only materialize if closures last for an extended period.
Based on the severe decline in the oil markets and the stock markets, most economic observers anticipate a U-shaped recovery rather than V-shaped one, Guettabi said.
“Alaska will not escape the damage as the tourism season is in serious jeopardy, oil prices have significantly declined, and the recent establishment closures as of Mid-March are affecting a few sectors, mainly the Leisure and Hospitality industry,” Guettabi said. “The economic effects from social distancing measures as well as the decline in travel will have far reaching consequences for the Alaska economy in both the short and long run.”
Guettabi said a recent Moody’s analytics report said that as many as 80 million Americans are in high or moderate risk of a layoff, and that at least 10 million of those in relatively high risk occupations will actually be laid off. Moody’s report said workers in transportation and travel, leisure and hospitality, temporary help services and oil drilling and extraction among the most likely to be affected.
Alaska in very precarious position
“The state is in a very precarious position right now,” Guettabi said in an “Ask a UAA expert” video posted March 21 on YouTube.
“The state budget is very very dependent on oil revenues and, since the passage of Senate Bill 26, on the performance of the Permanent Fund,” he said. “The stock market is declining; oil prices are declining, which means that the two largest sources of revenue for the state are both being hit really hard.”
Almost 10% of all jobs in Alaska are in leisure and hospitality, the sector most sensitive to closures as well as declines in travel, Guettabi said in the ISER report.
GDP in the first quarter of 2019 was $54.9 billion, with $1.6 billion coming from accommodation and food services, $2.3 billion from retail trade and $7.4 billion from transportation and warehousing.
Guettabi’s findings suggest that March 2020 employment will be 26,319 less than in March 2019, with total wages in March 2020 down $34 million from March 2019.
April 2020 - the first full month post closures - employment will be 27,072 less than April of the previous year, while total wages lost will equal $79.1 million dollars, he said.
“Once we account for the multiplier effects, we conclude that April employment in 2020 will be around 48,000 less than April 2019,” he said.
Guettabi said that the multiplier effect on GDP, wages and employment may be much smaller if government aid reaches businesses quickly.
The ISER report can be found at: https://pubs.iseralaska.org/media/aae6343a-e2f6-4404-88ac-e7ed6b2e9724/Ak_econ_covid19.pdf
The “Ask a UAA expert” video can be found at: https://www.youtube.com/watch?v=zddlPnGnTjo
