The state of Idaho released its economic forecast for 2008, which highlights some of the challenges that the state will likely face in coming years.

Included in the report is a caution to all regions in Idaho that the worst of a growing credit crisis has yet to be felt. However, it also suggests that Idaho's exports will benefit greatly from a falling dollar - buffering the state against a deeper recession.

"The storm clouds are still gathering," the report states in its executive summary. "Growth is slowing, and the credit crisis has returned, threatening a more severe tightening in credit to households and businesses."

The Division of Financial Management expressed a concern in the report that more stringent lending requirements may prevent some businesses from receiving the capital they need to expand and create more jobs.

As a result of the credit problems, the state expects nonfarm employment to slow in the first and second quarters of 2008 before returning to its average growth rate of 4 percent.

"I think there is going to be a little bit of slowdown in our area, and it will probably dip down to 2.4 percent before returning to normal levels," said Jan Roeser, regional economist for Idaho Department of Labor. "However, our agricultural industry looks like it will remain strong and it will probably help us through that time."

According to the report, agricultural jobs and revenues will grow as increased demand pushes prices higher for commodities such as beef, dairy corn, wheat and potatoes.

Roeser said the biggest concern for labor and commerce officials regarding the economy of south-central Idaho is the current water issue.

"What we are really going to be watching is how the water curtailment plays out," she said. "Some of those agricultural businesses may have to pay more for their water, and they might have to make some changes to do that."

The rest of the state is also relying on lower oil prices and a bottoming-out of housing starts in order to help the state return to its robust growth rate of about 3 percent.

Idaho economists expect housing starts to bottom out in late 2008 - indicating that the state's housing inventories had been sold off.

"Falling prices should help gradually work off the huge housing inventory overhang, which will take an enormous weight off the economy's shoulders," the report states. "Relieved of this burden, real GDP is expected to grow nearly 3 percent in each of the next three years."

Joshua Palmer may be reached at (208) 735-3231 or at jpalmer@magicvalley.com