By Matt Tarleton, Project Manager.
Germany’s surprising 0.5 percent annualized growth in the first quarter
of 2012 has allowed the European Union to technically avoid a recession.
However, nearly every other EU country has slipped into an official
recession, defined as two consecutive quarters of negative output
growth. The likelihood that the EU avoids recession depends heavily on a
number of risk factors, including but limited to the region’s debt
woes, the ongoing crisis in Greece and the potential for a Greek exit
from the EU, and the degree to which other European economies (such as
France, Italy, Portugal, and the UK) continue to underwhelm.
So for those of us on the other side of the Atlantic, what does this
mean for our economic recovery? One of the primary ways in which a
European recession will affect the U.S. recovery is through American
exports. As manufacturing activity and consumer spending are depressed
in the EU, demand for American-made consumer products and intermediate
goods used in manufacturing processes will fall, resulting in a decline
in exports, and therefore output, in the United States. Similar effects
could be seen in professional services exported to EU businesses.
In order to determine which states’ economic recoveries are most
susceptible to an impending recession (or at worst, continued
stagnation) in the EU, I examined exports to the European Union as a
share of each state’s total output (gross state product). The following
map illustrates the findings based on 2011 trade and output data. Those
states in red possess the largest relative share of output derived from
exports to the EU, and therefore more susceptible to weakened producer
and consumer demand in the EU. Those states in blue are least
susceptible, while exports to the EU as a share of GSP are roughly
equivalent to the national average (within a few tenths of a percent) in
those states that are white.
By this basic measure, the Utah, South Carolina, and West Virginia
economies are most vulnerable to EU recessionary pressures, with the
percentage of GSP derived from EU exports all more than double the
national average. The majority of the states in the Great Plains are
among the least susceptible, with tremendous variation in the South and
the Northeast. A more detailed analysis would examine the hardest hit
sectors in the European Union and tie these trends to the sectors most
reliant on EU exports in each state. Perhaps something to look for in an