Standard & Poor’s expects slightly negative economic conditions for state and local governments in 2013.

In his report “U.S. State and Local Government Credit Conditions Forecast: The Difference This Time,” credit analyst Gabriel Petek wrote that S&P was simultaneously brightening its outlook on 2012 growth and darkening its expectation for 2013 growth.

While in July it forecast a 2% 2012 growth rate for real gross domestic product, it is now predicting a 2.2% rate for this year. S&P has also shifted from forecasting a 2% 2013 growth rate for GDP, to predicting a 1.8% growth rate for next year.

“Relatively slow economic growth portends sluggish tax-revenue growth for state and local governments,” Petek wrote.

S&P also predicts a 3.2% cut in inflation-adjusted federal spending in 2013. Petek wrote that this cut “could directly affect state budgets and indirectly affect local government budgets.”

However, for 2013 Standard & Poor’s is predicting improvements in other economic measures: unemployment rates, real consumer spending, housing starts, core consumer price index, and change in the S&P 500 Common Stock Index.

Petek predicted that the region including Arkansas, Louisiana, Oklahoma and Texas  will experience the best growth next year. He predicted that the region including Illinois, Indiana, Michigan, Ohio and Wisconsin will have the weakest growth.

“The recovery has likely been especially tepid in part because consumers have made household balance sheet repair a priority,” Petek wrote in his report. “Compounding this situation are stricter credit standards that hinder faster recovery in the real estate market.”

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