The state’s budget crisis could short circuit the recovery that was expected to start the second half of this year, according to latest quarterly economic forecast issued Tuesday morning by the UCLA Anderson Forecast.

California budget cuts could force the layoffs of thousands of state employees, who in turn would hold back their spending and add to already swollen unemployment rolls, the forecast said.

“There is a dark cloud on the horizon: California’s state government,” UCLA Anderson Forecast Senior Economist Jerry Nickelsburg wrote in the forecast. The contraction, he believes, will come at the worst possible time.

In an interview, Nickelsburg said state layoffs could drive up the state’s unemployment rate already projected to reach 12 percent by the end of the year another half percentage point. The April unemployment rate statewide and in Los Angeles County was 11 percent, up from 6.7 percent a year earlier.

Nickelsburg said the impact from state employee layoffs is greater than envisioned in the last quarterly UCLA forecast released in March, in part due to the failure of the budget measures on the May 19 special election ballot. Those measures could have brought in as much as $6 billion for the 2009-10 budget, and that money could have prevented many of the layoffs that are now expected.

These layoffs could crimp a recovery that had been expected to start in the second half of 2009, gather steam in 2010 and reach full force in 2011, the forecast states.

But Nickelsburg said there is one positive sign in the near-term outlook: the correction in the housing market is largely complete. “What we’re now seeing is an over-correction that’s typical in a housing bust, as housing prices are moving below the long-run historical average appreciation rate.”

The outlook for retail employment and retail space is bleaker as impacts are now being felt from the liquidations of major retail chain stores including Mervyn’s and Circuit City. Meanwhile, the effects of car dealership closings have yet to be felt.

“We already had an overbuilt retail market and that’s going to take years to recover,” Nickelsburg said.

Manufacturers will also find it tough going. Nickelsburg said that consumption levels among the country’s major trading partners except for China are expected to remain depressed longer than in the U.S., making it more difficult for the region’s manufacturers to export their products.