Author: Jeffrey M. Humphreys
Takeaways
- The 2026 forecast calls for the second straight year of slow economic growth.
- The trade war and restrictive immigration policies are the main problems.
- The risk of recession is high.
- The Federal Reserve will ease monetary policy.
- Georgia will roughly match the United States’ pace of GDP and job growth.
Our 2026 forecast for Georgia calls for the second-straight year of slow economic growth. The pace of growth will be barely above the economy’s stall speed. Growth will be slow because of protectionist trade policies, the stricter enforcement of immigration laws, and the slow growth of the U.S. economy.
The risk of recession is high. Georgia is less well-positioned now to weather the U.S.-led economic slowdown than it was at the beginning of 2025. There’s less economic momentum, more economic uncertainty, and there are not as many large projects in Georgia’s economic development pipeline. Plus, fewer people are moving to Georgia, whether from other states or other countries.
In 2026, Georgia’s economy is expected to match the U.S. economy in terms of GDP and job growth (see Table 1). However, both economies will struggle. It would not take much to tip the economy into recession. We believe the risk that a recession will begin before the end of 2026 is just under 50%. That is double the 25% recession risk we estimated at the Georgia Ag Forecast event last year, and more than triple the 15% average (or typical) annual recession risk.
Table 1. United States Baseline Forecast 2025–2026.
| United States | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 |
|---|---|---|---|---|---|---|
| Gross domestic product (billions of 2017 $) | 21,494.8 | 22,034.8 | 22,671.1 | 23,305.0 | 23,654.6 | 23,962.1 |
| Percent change | 6.1 | 2.5 | 2.9 | 2.8 | 1.5 | 1.3 |
| Nonfarm employment (millions) | 146.3 | 152.5 | 155.9 | 158.0 | 158.9 | 159.4 |
| Percent change | 2.9 | 4.3 | 2.2 | 1.3 | 0.6 | 0.3 |
| Personal income (billions of $) | 21,419.5 | 22,088.9 | 23,402.5 | 24,669.3 | 25,779.4 | 26,862.2 |
| Percent change | 9.2 | 3.1 | 5.9 | 5.4 | 4.5 | 4.2 |
| Civilian unemployment rate (percent) | 5.3 | 3.6 | 3.6 | 4.0 | 4.2 | 4.7 |
| CPI-U, annual percent change | 4.7 | 8.0 | 4.1 | 2.9 | 3.0 | 3.5 |
| Source: The Selig Center for Economic Growth, University of Georgia Terry College of Business. | ||||||
In 2026, we expect Georgia’s inflation-adjusted GDP to increase by 1.5% (see Table 2), which is about the same as the 1.3% gain that we expect for U.S. GDP. Georgia’s GDP grew by more than 3% in 2024. Georgia’s long-run average pace of GDP growth is 2.3%.
Jobs
Job growth has already come to almost a full stop. Since mid-2025, we have been in a jobs recession. We have seen a few mass layoffs, such as at the CDC and International Paper. The main problem is that hiring has slumped. Job growth has narrowed to only a few industries, such as healthcare. We expect 0.5% job growth in 2026.
Georgia’s unemployment rate for 2026 will average 4.1%, up 0.5 percentage points from its 2025 unemployment rate of 3.6%. Georgia’s unemployment rate would be higher if not for the extremely low starting point and the lack of labor force growth. A slow rise in the unemployment rate will not be enough to trigger a sharp pullback in consumer spending, but a faster-than-expected increase in the unemployment rate is a recession risk.
Table 2. Georgia Baseline Forecast, 2025–2026.
| Georgia | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 |
|---|---|---|---|---|---|---|
| Gross domestic product (in billions of 2017 $) | 634.0 | 665.7 | 678.2 | 701.1 | 710.9 | 721.6 |
| Percent change | 6.3 | 3.5 | 1.9 | 3.4 | 1.4 | 1.5 |
| Nonfarm employment (thousands) | 4,598.4 | 4,810.6 | 4,909.5 | 4,963.9 | 4,988.0 | 5,014.3 |
| Percent change | 3.9 | 4.6 | 2.1 | 1.1 | 0.5 | 0.5 |
| Personal income (billions of $) | 605.2 | 625.2 | 660.4 | 697.6 | 728.3 | 759.6 |
| Percent change | 9.6 | 3.3 | 5.6 | 5.6 | 4.4 | 4.5 |
| Housing permits, total | 67,223 | 77,752 | 63,621 | 68,367 | 59,275 | 57,947 |
| Percent change | 20.4 | 15.7 | -18.2 | 7.5 | -13.3 | -2.2 |
| Unemployment rate (percent) | 3.9 | 3.2 | 3.3 | 3.5 | 3.6 | 4.1 |
| Source: The Selig Center for Economic Growth, University of Georgia Terry College of Business. | ||||||
Policies Affecting Economic Growth
Protectionist trade policies are the main reason economic growth will slow, and this will keep the risk of recession at an elevated level. In 2026, we expect trade tensions to remain high and most existing tariffs to remain in place. We assume the effective tariff rate on imports will gradually stabilize at about 15%, which is about six times higher than the 2.5% effective rate at the beginning of 2025. High tariffs are a strong economic headwind, but we believe an effective tariff rate of 15% is not high enough on its own to trigger a recession.
Uncertainty about U.S. trade policy adds considerable downside risk to the prospects for international trade and Georgia’s economy. We expect that clear and predictable trade policies will not develop quickly enough to materially boost economic growth in 2026. Too many decisions regarding capital projects and hiring will remain on hold until trade policies stabilize and become more predictable. That said, the wild swings in imports and exports are probably over; U.S. companies and trading partners likely have adjusted to the new policy environment. Plus, as uncertainties surrounding tariffs and trade polices gradually lessen, we expect a manufacturing recovery to begin in Georgia.
The recent pivot toward more restrictive immigration policies is the second reason that the pace of economic growth has slowed to just above the economy’s stall speed. We expect net foreign immigration to be negative in 2026. However, with current immigration restrictions in place, we view the policy pivot as an economic headwind rather than a recession trigger.
Inflation and Interest Rates
We expect tariff-induced price adjustments to provide a short-term boost to inflation, but not to result in sustained inflation. We expect inflation to peak at 3.5% in 2026 and to retreat to 3.0% in 2027. With recession risks running high, the Federal Reserve will ease monetary policy even though the inflation rate will be higher than its preferred target of 2%.
The Federal Reserve’s willingness to ease monetary policy reflects several developments:
- recent success in bringing down the inflation rate from 8% in 2022 to 3% in 2025,
- the soft labor market,
- a high risk of recession, and
- an understanding that tariffs provide a one-time push to inflation that fades once incorporated into the costs of doing business.
We expect additional cuts in short-term policy interest rates to lower the federal funds rate to 2.75%, down from 4.5% at the beginning of 2025 and from 5.5% in 2024. Barring an unexpected shock, the recent and continuing shift from tight money toward easy money is likely to forestall a recession, but it will be close. If a recession develops, the Federal Reserve will cut rates to below 2.75% and will restart quantitative easing by purchasing treasuries and/or mortgage-backed securities.
Georgia is likely to benefit from lower interest rates more than the rest of the United States because of our high dependence on real estate development. In addition, Georgia will benefit because low rates will encourage businesses to invest in more economic development projects, and Georgia is likely to win an outsized share of such projects.
Of course, cuts in the short-term policy interest rates that the Federal Reserve controls directly do not mean that rates on longer-term debt come down very much. Long-term interest rates are largely determined by investors who are likely to be concerned about inflation, large federal budget deficits, and the growing share of public debt in GDP. For example, we expect mortgage rates to fall by only about 25 basis points in 2026, which will not do much to prop up the housing market and home prices.
Georgia’s Economic Drivers
Several economic drivers will be stronger for Georgia than for the United States, but to a lesser degree than in recent years. For example, Georgia’s economic developers are among the best in the nation, and there are a lot of projects in the pipeline that are either building out or have recently become operational. In 2026, we expect that uncertainty and slow economic growth will reduce the number of expansions, relocations, and startups that are in contention. Georgia is likely to win more projects than other states, but the dearth of projects suggests that our economic development competence is likely to provide a smaller push to Georgia’s economy in 2026 than in recent years.
Population
Georgia’s population surged in the postpandemic period, growing much faster than the U.S. population. There are three main reasons why Georgia’s population surged. First, the increased acceptance of remote work and a desire to live in less densely settled locations favored Georgia. Second, above-average job growth attracted working-age migrants to Georgia. Third, liberal U.S. immigration policies brought international migrants to Georgia.
The 2021–2024 rates of population growth were not sustainable. Many employers began to limit remote work. The job market softened, and fewer people moved. Meanwhile, the stricter enforcement of immigration laws led to a reversal in net international migration to Georgia—from a positive 63,000 people to a loss of 2,000 people in 2025. Net international migration to Georgia is likely to be a negative 4,000 people in 2026.
Put it all together, and Georgia’s population will grow very slowly in 2026, but our population will grow faster than the U.S. population. Georgia’s above-average population growth means above-average labor force growth, which will keep Georgia’s potential rate of economic growth above that of the United States. That said, population growth will provide a lesser advantage to Georgia’s economy in 2026 than it has in recent years.
Transportation and Distribution Industry
Because of trade tensions and the slow growth of the United States and global economies, Georgia’s transportation and logistics cluster will be less of an advantage than usual, but it will still be a driver of growth. In 2026, we expect Georgia’s transportation and distribution industry to outperform the United States because of the build-out of recently announced projects and substantial investment in transportation infrastructure. For example, the 2018 opening of the Appalachian Regional Port helps the Port of Savannah tap into new markets and brings economic development projects to Georgia. The 2026 opening of the Georgia Ports Authority’s second inland container port, the Blue Ridge Connector near Gainesville, will produce similar benefits.
We have had remarkable success in attracting transportation, logistics, and distribution companies to Georgia. The build-out and scaling up of operations at these facilities will boost Georgia’s economy.
Defense and National Security
Some economic development drivers will be stronger in 2026 than in 2025. For example, we expect higher spending on defense and homeland security. Georgia ranks sixth in the United States for total Department of Defense employment. Fort Benning, near Columbus, is Georgia’s largest employer. In 2026, military pay raises will outpace inflation.
Georgia Manufacturing
Georgia manufacturing was in recession in 2025, primarily because of the trade war. As uncertainties surrounding tariffs and trade policies lessen, we expect a manufacturing recovery to begin in 2026. Production by Georgia’s manufacturers is likely to grow faster than production by U.S. manufacturers. Georgia announced many manufacturing economic development projects during 2020–2025. Many of these projects continue to build out and ramp up production.
Another reason Georgia manufacturing will outperform is because our largest manufacturing industry is food processing. In 2025, Georgia ranked as the sixth leading state in food processing, up two spots from 2024. Food processing should do well in 2026. Many of the economic development projects announced over the last few years were in food processing.
Put it all together, and in Georgia, the number of manufacturing jobs will increase slightly. In contrast, we expect the number of U.S. manufacturing jobs to decline slightly.
Data Centers
Georgia is the number one state in the country for data center activity, surpassing Virginia, which has long been the market leader. We expect that soaring demand for high-performance computing, particularly for AI, will continue to drive the construction of new data centers. Data centers create thousands of jobs during their multiyear buildout phases and hundreds of permanent, high-paying jobs once they are operational. As newly built data centers age, upgrades and repairs support additional jobs.
The main challenge is ensuring that ample supplies of reliable electricity and water are available for this energy- and resource-intensive industry. We expect fast growth of Georgia’s data center industry, but over time, increased community opposition, regulatory actions, and resource limitations will slow growth. The unrestrained growth of Georgia’s data center industry will transition to an era of managed growth.
Imports/Exports
Georgia depends more on global trade than the average state. Imports equal 17% of Georgia’s GDP compared to 11% of U.S. GDP. Tariffs and nontariff barriers to trade will be a stronger economic headwind for Georgia than for the rest of the United States. Most imported goods are either intermediate goods or capital goods used by businesses to produce final products. Consequently, tariffs increase production costs for Georgia businesses and disrupt their supply chains. Higher production costs make our products less competitive.
New tariffs and new export regulations create uncertainty for businesses, which postpones decisions regarding hiring and capital investment. Tariffs imposed by executive order can be a source of uncertainty for markets because they can be easily removed by the next administration or invalidated by the courts. We expect the effective tariff rate to stabilize at about 15% in 2026. We expect that less uncertainty about trade policies will weaken the economic headwinds generated by trade tensions, but uncertainty will not decline fast enough to boost Georgia’s GDP growth in 2026.
Real Estate
In 2026, we expect commercial real estate development to remain stuck in the trough of a prolonged recession. The continuing recession in commercial real estate development will be more problematic for Georgia than the United States because of Georgia’s higher dependence on the industry. For example, commercial real estate development accounts for about 209,000 jobs in Georgia, or one job in 33. Nationally, the industry accounts for one job in 40.
Let us take a close look at housing market conditions. After a brief pandemic-related boom, the home-building and home-selling industries fell into recession in 2022, bottomed in 2023–2024, and were flat in 2025. We have seen an occasional uptick in real estate activity, but these proved to be bounces along the bottom of the trough of the housing recession rather than the beginning of a meaningful recovery.
Home building and home selling will be stuck at depressed levels because affordability is at record lows, few households are desperate to either buy or sell, the job market has softened, almost nobody’s moving, and population growth is slowing. We do not expect these limiting factors to change very much in 2026. Therefore, Georgia’s housing industry will remain in recession.
As of mid-2025, Georgia’s existing home prices were 70% higher than prior to the COVID-19 pandemic. U.S. home prices rose by 59%. Inflation over that same period was only 24%. Home prices in Georgia rose three times faster than inflation.
In 2026, we expect home prices to decline. On average, Georgia’s home prices are likely to decline more than U.S. home prices because our housing market was more overheated. The weak job market will be the trigger for a decline in home prices.
If, as we expect, home prices decline more in Georgia than in the United States, it will be more difficult for Georgia’s economy to outperform the U.S. economy. Home price declines will lower people’s confidence and, in turn, curb their spending. Home equity is frequently a major source of capital for entrepreneurs. Lower home prices reduce home equity. That will limit small business formation and expansion, perhaps more so in Georgia than nationally.
We do not expect a repeat of the housing bust that accompanied the Great Recession because there will not be enough distressed sales to drive home prices down drastically. Additionally, there is considerable potential for stronger and more active housing markets once the economy returns to its trend growth. The home is fundamentally more important to a larger proportion of the population than prior to the pandemic. The 2025–2026 economic slowdown is unlikely to change the high value people place on homeownership. Meanwhile, pent-up demand will continue to build. Many young people are opting to live with relatives a bit longer or are doubling up with roommates. Once the labor market improves, more people will opt to live on their own. Home builders will benefit because of a substantial nationwide housing shortage.
We are optimists for the housing industry, but housing market conditions will not improve until Georgia’s job market upshifts. That is unlikely to happen in 2026. Therefore, 2026 will be another difficult year for home sellers and home builders.
Risks
As always, there are upside and downside risks. On the upside, a substantial de-escalation of the trade war would cause the economy to grow faster than expected. Immigration policies could also stabilize, which would boost prospects for faster economic growth. Faster-than-expected adoption of technology trends, such as AI, could boost investment spending and productivity, in turn driving economic growth. Competitive pressures may push businesses to spend more than expected for equipment and intellectual property.
On the downside, the trade war could become more intense. We could see more mass layoffs. Asset valuations are very high and are vulnerable to correction. The Federal Reserve could keep interest rates too high for too long, and the growing fiscal deficit and public debt could prevent long-term interest rates from falling. Or we might experience a widespread loss of faith in the U.S. economy, which would cause spending by consumers and businesses to decline. Annual federal budget deficits that exceed 6% of GDP increase the risk of recession. Large deficits will limit our capacity to reverse a downturn using fiscal policy.
Summary
In closing, our forecast calls for the second-straight year of slow economic growth. Uncertainty associated with trade and immigration policies is the main economic headwind. We expect Georgia’s economy to grow at about the same pace as the U.S. economy. The main recession risks and imbalances are the same as we identified at the Georgia Ag Forecast event last year, but we believe the risk of recession is higher. We put the risk of recession at just under 50%, which is triple the usual annual recession risk.
Our forecast for continued, but slower, growth depends on additional easing by the Federal Reserve, a gradual reduction in uncertainties surrounding U.S. trade policies, and the build-out of projects in Georgia’s economic development pipeline.
