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Economists hopeful Mass. growth will continue

Despite looming federal budget cuts, economists said they are cautiously optimistic that Massachusetts’ economy will continue to grow in the next year because of the state’s improving jobs and real estate markets, and a brightening economic picture in Asia, according to a new analysis by the University of Massachusetts and the Federal Reserve Bank of Boston.

Although the state’s economy is poised to expand, the report said, the across-the-board federal budget cuts known as sequestration that are set to take effect in March could cut federal defense, research, and health spending in Massachusetts, damaging fragile business and consumer confidence.

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While it is unclear precisely how federal spending reductions will affect the state, economists are worried the cuts could slow Massachusetts’ steady recovery from the recession.

“All these sources of federal support are in jeopardy,” the report’s authors wrote in their analysis, published in MassBenchmarks, a UMass journal.

“The state economy depends disproportionately on sectors of the economy that will be hard hit by these budget cuts,” the report added.

For instance, the Massachusetts technology sector is closely linked to Defense Department spending, which would face steep budget reductions.

Academic research centers here also depend on grants from federal agencies, including the National Institutes of Health and the National Science Foundation.

Earlier reports in the same journal predicted cuts, if enacted, would cost the state economy more than 50,000 jobs over the next few years.

The new analysis was based on the comments of the MassBenchmarks editorial board, which includes leading regional economists from the Boston Fed, the Federal Deposit Insurance Corp., Wellesley College, Boston University, and the Massachusetts Institute of Technology.

But forced austerity measures at the federal level will not be enough to send the Massachusetts economy back into recession, said Robert A. Nakosteen, executive editor of MassBenchmarks and an economics professor at UMass Amherst.

Nakosteen said the MassBenchmarks editorial board generally believed Congress will intervene before funding reductions go into effect or will take actions shortly after they do because of public outcry.

“At some point, good sense will rise to the fore, and they’ll either stop the sequester or make it more intelligently done. There’s a general feeling that something’s going to be done to ameliorate the impact,” he said. “But we’re economists, not politicians.”

The economists said 2012 was a relatively good year for the Massachusetts economy, noting that unemployment has hovered around 6.5 percent in recent months, much lower than the national rate, which remains closer to 8 percent.

Global economic conditions also appear to be improving, which will likely lift sales of Massachusetts products abroad this year.

China’s economy is poised for growth, the report said, and despite a slowdown in Europe, the economists said they were encouraged that eurozone nations have avoided a breakup.

Meanwhile, the economists said the state’s gross domestic product has expanded, signaling a “reasonably healthy recovery from the recession.”

They predicted a trend of modest growth could be sustained throughout 2013. “Our economy has shown continued resilience,” the report said, “but we must closely track political and economic developments both in Washington and overseas.”

Megan Woolhouse can be reached at mwoolhouse@globe.com.
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