Europe’s crisis could spread here

Economist tells lawmakers recovery will take awhile

On the first day of summer, legislators learned Colorado’s economy probably will cool after its respectable growth this spring.

Instability in the countries that use the euro currency, a looming bank crisis in Spain and even the U.S. presidential election are dragging down the national economy, and Colorado is not immune, said Natalie Mullis, chief economist for the Legislature’s nonpartisan staff.

“Uncertainty and a crisis of confidence are at the heart of the slowdown here in the United States. Businesses, households and the nation’s banks are concerned – for very good reason – about the European economy,” Mullis said.

If Spanish banks fail, it could spread a financial “contagion” to other countries, including the United States, and the credit system could freeze up in the same way it did in 2008, Mullis said.

But disaster is not certain. Mullis predicted better days, but not for at least another year or more. She thinks Colorado’s employment rate will return to its prerecession peak sometime in 2014.

Legislators are keenly interested in the economic forecasts they get every three months because people pay more taxes into the state budget when the economy is good.

A decent recovery in Colorado’s economy has brought in nearly $240 million more than state leaders expected at the last forecast, in March, said Henry Sobanet, head of the governor’s Office of State Planning and Budgeting.

That money will go into the State Education Fund, which acts as a savings account to help public schools cope with tough times in the future.

Sobanet praised legislators for setting the money aside, compared with previous recessions when they spent almost every dollar they could.

“This will protect us from an unexpected downward shock,” Sobanet said. “So we have something, I believe, to be proud of in how we’ve structurally designed this current recovery period.”

Southwest Colorado continued to show signs of growth, according to Mullis’ forecast. Jobs in the region grew 1.6 percent in the first three months of the year, and retail sales increased, as well. But the construction industry and housing market are still dragging on the region, the forecast said.

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