A report released Thursday by the U.S. Bureau of Economic Analysis showed Connecticut as the only state in the nation with a shrinking economy last year.
The BEA said the state's real gross domestic product - the total value of all goods and services produced in the state, adjusted for inflation - fell by a fraction of a percent in 2012.
"This does not put Connecticut in a favorable light," Peter Gioia, an economist and vice president of the 10,000-member Connecticut Business & Industry Association, said in a phone interview. "When you have the highest tax increase in history during a recession, you pay a price."
Gov. Dannel P. Malloy, during a press conference, blamed other factors, including Connecticut's over reliance on exports to Europe, which has been in a two-year recession, and his decision to shrink the size of government, which he said has been downsized faster than in almost every other state.
"Is it good news? No, it's not good news," Malloy said in an audiotape of the conference supplied by the governor's office. "... We need to do better."
Malloy pointed out, however, that the state has added 26,000 new private-sector jobs in the past two years - the fastest two-year increase, he said, since the 1990s.
But Gioia said the state's lack of GDP growth is hardly a one-year phenomenon. In 2011, real GDP growth was equally lackluster, he said, placing the state 45th in the country in terms of economic performance, according to the latest report.
Malloy, citing another study, said Connecticut had the ninth fastest-growing economy in the country in 2011.
The GDP report dovetailed with the release of a quarterly survey Thursday by CBIA showing that only 17 percent of the state's business leaders expect Connecticut's economy to improve in the near future, while 23 percent foresaw the U.S. economy as a whole gaining ground. The survey of about 1,900 businesses elicited 221 responses.
"We don't have our fiscal house in order," Gioia said. "Businesses don't have a lot of faith in Connecticut as a place to invest."
State tax increases totaling $3.8 billion over the past two fiscal years have hit small businesses particularly hard, Gioia contended. This is because most of them file as S corporations, limited liability companies or limited liability partnerships, which are subject to personal income taxes, he said.
Another factor adding to business woes, he said, was Malloy's initiative to require mandatory paid sick leave. Higher minimum wages passed in the most recent session also likely will affect the business climate and might hurt employment in the state, he said.
"The budget just passed - this was not a new direction," Gioia said. "What we saw was a lot of the same, if not worse."
The lack of a GDP increase in Connecticut last year compared with a national average of 2.5 percent in increased economic output. The Southwest had the fastest growth rate at 4.1 percent, while New England's economic growth lagged at 1.5 percent.
North Dakota, at 13.4 percent, led the nation in economic growth last year. Rounding out the top five were Texas, 4.8 percent; Oregon, 3.9 percent; Washington, 3.6 percent; and Minnesota, 5 percent.
Wyoming, New Mexico, South Dakota and Delaware were among the bottom five in terms of economic growth last year.
Thirty-nine percent thought the state's economy would remain stable, up from 34 percent in the previous quarter.