LOS ANGELES - California's economic recovery is expected to lag behind the rest of the nation's, as problems ranging from the state's $38 billion budget shortfall to out-of-control workers' compensation insurance costs continue to take their toll on business and dampen hiring, according to a new economic forecast.

While economists expect the nation to undergo a modest expansion in the second half of 2003, California, which accounts for 15-16 percent of the U.S. economy, will likely trail behind as long as the state's budget woes go unsolved, the Los Angeles County Economic Development Corp. reported Monday. The group conducts its forecast twice a year.

"We're looking for the national economy to move right along, not at a great rate of speed, but California's obviously going to act as a brake on the national economy," said Jack Kyser, chief economist at LACEDC, a private, not-for-profit business association.

The campaign to recall Gov. Gray Davis may delay any comprehensive solution to the budget crisis, prolonging doubts among business owners, Kyser said. "We have the governor trying to avoid recall, so that's taking all his attention," he said. "(Businesses) are looking at the possibility of fee increases. That makes them nervous."

The workers' compensation insurance crisis will also contribute to lagging hiring, the forecast said. Increases in the cost of workers compensation insurance coverage have caused businesses to taper down hiring or lay workers off, particularly restaurants, construction, apparel and government agencies.

The forecast sees the employment picture for the state mixed. For the year, the northern half of the state is expected to lose 42,800 jobs, while Southern California will likely create 60,000 jobs.

Despite evidence orders for new technology equipment are up, effects of the tech downturn and lackluster tourist traffic to the San Francisco Bay area continue to hurt job prospects in the northern half of the state, Kyser said.

In Southern California, Riverside-San Bernardino, San Diego and Los Angeles County should continue creating jobs, while Ventura County will end the year with fewer jobs, Kyser said.

International trade, retail trade, transportation and construction will generate the most jobs, Kyser said.

The bulk of the estimated yearly job losses in Northern California have already occurred, Kyser said.

Among the business sectors most likely to prosper under current economic conditions are aerospace, international trade and new homebuilding. Local government and health and services will likely be hit hardest. "They're both being hammered," Kyser said. While the health and services sector has continued to hire new workers, the industry is under pressure from rising costs and increased demand for services. Public facilities are also affected by the state budget crisis. "Los Angeles County is looking to shut down facilities," Kyser said. "A lot of people have been rather bullish on the private sector health care companies, but I think there's a lot of disappointment about their operating results."