A sustained period of low interest rates nationally, combined with planned state investments such as the Biosciences Connecticut complex in Farmington, should keep Connecticut's economy humming along for the next two years, according to a report released Thursday by analysts at the University of Connecticut.

The quarterly report by the Connecticut Center for Economic Analysis emerged as a multicolored rainbow compared to the gloomy projections in previous issues of the Connecticut Economic Outlook. The difference, economic forecaster and report co-author Peter Gunther said in a telephone interview, is that the Federal Reserve recently promised to keep interest rates extremely low through 2014, and the state has begun implementing growth-oriented policies such as construction of a New Britain-Hartford Busway, incentives to attract Jackson Laboratory, and the planned expansion of John Dempsey Hospital in Farmington.

"These strategic public policies and investments promise to deliver both strong short-run benefits and create the foundation for sustained long-term growth," according to the report. "A bevy of major capital projects has the potential to give Connecticut growth rates above the national pattern through the end of 2013."

The report said Connecticut appears to have outperformed the U.S. economy last year, with a growth rate likely exceeding 2.6 percent. The national growth rate, state analysts said, was likely closer to 1.8 percent.

"We're beginning to change the trajectory (of the state economy), but we've ignored it for 20 years, so it's taking a while," said Fred Carstensen, director of the Connecticut Center for Economic Analysis.

The economic forecast said projections show the state's economy should slow down this year, but the positive effects of low interest and public initiatives amounting to nearly $2 billion over a two-year period should provide buoyancy - boosting jobs statewide by as much as 43,000 by the end of next year.

That would still leave Connecticut about 30,000 jobs short of levels seen before the bottom fell out of the state labor market in 2008. But without the stimulus effect of low rates and high construction spending, the state would add only one-third of the jobs it is expected to create over the next two years.

"Considering how far we fell, it's going to take us a long time to get out," Gunther said.

The report gave no projections specifically for the Norwich-New London area, which has lagged the state in job growth so far this year. And some naysayers have noted that few of the major projects statewide are targeting southeastern Connecticut.

But Gunther said Connecticut is small enough that most of the state will see an economic stimulus from major construction projects, even if some areas will receive a bigger boost than others. He added that the Jackson Laboratory project, for instance, could keep Pfizer Inc. scientists in the area who might otherwise find jobs out of state.

"The benefits tend to percolate," he said.

The upside of growth projected for Connecticut this year in the UConn report is 3.3 percent, while the downside is 1.7 percent.

The report said the state might see even more dramatic growth if it decided to repurpose almost $2.5 billion in tax credits that businesses have earned but have not been able to use because of various roadblocks. Gunther said legislation would have to be passed to allow companies such as Pfizer to use these credits in new ways - or sell them to other companies - so firms could be encouraged to stay or to expand in the state.

"This would generate tens of thousands of new jobs and anchor major companies in the state for a generation," according to the report. "The final payoff is that this approach is entirely self-financing: It generates so much net new revenue for the state that it repays fully the redemption of the tax credits and delivers a revenue bonus."

The report said credits lying unused because of legal restrictions undercut the state's credibility with the business community and undermind initiatives currently on the table.

"Unleashing accumulated tax credits by converting them from a liability into an asset could fully recover all of the jobs lost in the last four years and put the state on a path of sustained economic health and competitive strength," the report concluded.

l.howard@theday.com