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CRISIS AND CHANGE IN EUROPE
WHAT IT MEANS FOR U.S. BUSINESS
Presented byKris BledowskiEconomist andCouncil [email protected]
Outline
• Two-Pronged Analysiso Structural change: long-term risks and opportunities for U.S. exporterso Medium-term change: cyclical outlook for European manufacturing
• Beyond the Crisiso Europe as long-term partner in manufacturingo Competitiveness, convergence, integration, cohesiono Emphasis on longer-term trends
• Beyond Headline Numberso Europe’s manufacturing business cycleo Risk areaso Detailed European industrial outlook by sector
• Will the Eurozone Break Up?
Despite Growing Importance of Asia, Trade with Europe Weighs Big …
Trade Volumes in Goods
Source(s): Bureau of Economic Analysis and Manufacturers Alliance/MAPI
Trade Balance in Services
… And the European Share of FDI Flows Dwarfs Other Regions
Foreign Direct Investment to/from Europe
Source(s): U.S. Bureau of Economic Analysis and Manufacturers Alliance/MAPI
Income Convergence Inches Ahead But the Pace is Slow
Real GDP Level, PPP-Weighted, Relative to EU27 Mean
Source(s): Eurostat and Manufacturers Alliance/MAPI
Industrial Integration Has Tightened Sharply Over the Past Decade
Correlation Coefficients of Annual Manufacturing Growth Rates With EU27 Benchmark
Source(s): Eurostat and Manufacturers Alliance/MAPI*Poland 1996-1999
Volatility of Cyclical Change is Down This Decade
Standard Deviation of Real GDP Annual Growth Rates, (Quarterly Data)
Source(s): Eurostat and Manufacturers Alliance/MAPI*Poland 1996-1999
Leverage Ratios Vary Widely; So Do Relative Changes
Liabilities of Non-Financial Corporations, percent of GDP
Source(s): Eurostat and Manufacturers Alliance/MAPI* 2008; all others 2009
Source(s): Eurostat and Manufacturers Alliance/MAPI
Exports and Wages, 2000-2007
All Countries Grew Exports; Some Also Improved Competitiveness
Source(s): OECD and Manufacturers Alliance/MAPI
Productivity and Costs, Average Annual Growth Rates, 2000-2007
All Countries Are Productive; Some Control Costs Better Than Others
Eurozone Consumers Are Absent – Weak Growth Supported by Public Spending
Contribution to Eurozone’s GDP Growth, 2010Q1
Source(s): Eurostat and Manufacturers Alliance/MAPI
Contribution to Eurozone’s GDP Growth, 2009Q4
Central European Growth is More Robust But Also Uneven
GDP Forecast, Czech Republic, Hungary, Poland (CEE3)
Source(s): Eurostat and Manufacturers Alliance/MAPI
Lending Conditions Are Easing and Economic Climate Is Up
IFO Economic Climate and ECB Loan Officer Survey for the Eurozone
Source(s): European Central Bank and IFO Institute and Manufacturers Alliance/MAPI
Recovery Held Back By Depressed Bank Lending
Lending to the Private Sector
Source(s): European Central Bank and Manufacturers Alliance/MAPI
Costs of Financial Rescue Packages Have Been Modest So Far
Net Revenue (Cost) to General Governments, 2009 (Percent of GDP)
Source: Eurostat and Manufacturers Alliance/MAPI
The Industrial Side of the Economy Holds Up Better Than the Rest
Manufacturing Growth Rates, 2010Q2
Source(s): Eurostat and Manufacturers Alliance/MAPI
Sector 2009 2010 2011
Motor vehicles -23.8 19.5 4.0Chemicals -10.8 10.5 1.4Computers & electronics -21.1 8.3 1.2Electrical equipment -21.6 6.2 -1.1Rubber & Plastics -13.7 5.9 -0.9Fabricated Metals -22.8 4.0 3.2Paper & products -9.4 3.9 -1.0Textiles -19.1 3.5 -7.8Machinery & Equipment -27.0 2.6 5.9Food, beverages, tobacco products -1.1 0.1 -0.8Wood & products -16.3 -2.2 -2.7Non-Metallics -19.5 -4.0 -2.3Petroleum & Coke -8.0 -4.4 2.3Construction -8.3 -7.5 -0.2
Source: Eurostat and Consensus Forecasts and European Commission and Manufacturers Alliance/MAPI
Industrial Rebound in Western Europe Will Be Short-Lived
Manufacturing Production, Eurozone (Annual Percentage Change)
Sector 2009 2010 2011
Computers & electronics -1.9 31.8 -2.1Paper & products 0.5 14.8 3.3Machinery & Equipment -17.2 14.8 9.5Motor vehicles -14.6 13.1 7.8Rubber & Plastics -7.7 11.4 6.6Electrical equipment -9.7 11.3 11.2Fabricated Metals -17.3 8.7 7.2Textiles -11.3 5.3 -2.4Chemicals -8.7 5.1 -0.9Wood & products -3.9 3.5 1.1Petroleum & Coke -9.3 1.6 2.8Food, beverages, tobacco products 0.9 0.5 -1.1Non-Metallics -14.6 -1.0 3.6Construction 0.9 -14.5 1.0
Source: Eurostat and Consensus Forecasts and European Commission and Unicredit and Manufacturers Alliance/MAPI
Central Europe’s Industry Will Post Few Weak Spots in 2010
Manufacturing Production, Central Europe (Annual Percentage Change)
Will the Eurozone Break Up?
• Monetary Union as a Political Projecto Politics trumps economicso But economic costs of break-up matter
• What to Expect in Medium Termo Revisions to Stability-Growth Pacto New/improved fiscal ruleso Institutionalized macro-prudential oversight?
• Total Break-up vs. Individual Defectionso High cost of individual countries leaving (e.g., Greece, Germany)o More probable than total break-up but probability still lowo Sovereign defaults possibleo Permanent improvement in regional imbalances unlikely even in long term