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CRISIS AND CHANGE IN EUROPE WHAT IT MEANS FOR U.S. BUSINESS

CRISIS AND CHANGE IN EUROPE WHAT IT MEANS FOR U.S. BUSINESS. Presented by Kris Bledowski Economist and Council Director kbledowski@mapi.net. Outline. Two-Pronged Analysis Structural change: long-term risks and opportunities for U.S. exporters

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CRISIS AND CHANGE IN EUROPE WHAT IT MEANS FOR U.S. BUSINESS

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  1. CRISIS AND CHANGE IN EUROPEWHAT IT MEANS FOR U.S. BUSINESS Presented by Kris Bledowski Economist and Council Director kbledowski@mapi.net

  2. Outline • Two-Pronged Analysis • Structural change: long-term risks and opportunities for U.S. exporters • Medium-term change: cyclical outlook for European manufacturing • Beyond the Crisis • Europe as long-term partner in manufacturing • Competitiveness, convergence, integration, cohesion • Emphasis on longer-term trends • Beyond Headline Numbers • Europe’s manufacturing business cycle • Risk areas • Detailed European industrial outlook by sector • Will the Eurozone Break Up?

  3. Despite Growing Importance of Asia, Trade with Europe Weighs Big … Trade Volumes in Goods Trade Balance in Services Source(s): Bureau of Economic Analysis and Manufacturers Alliance/MAPI

  4. … 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

  5. 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

  6. 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

  7. 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

  8. 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

  9. All Countries Grew Exports; Some Also Improved Competitiveness Exports and Wages, 2000-2007 Source(s): Eurostat and Manufacturers Alliance/MAPI

  10. All Countries Are Productive; Some Control Costs Better Than Others Productivity and Costs, Average Annual Growth Rates, 2000-2007 Source(s): OECD and Manufacturers Alliance/MAPI

  11. Eurozone Consumers Are Absent – Weak Growth Supported by Public Spending Contribution to Eurozone’s GDP Growth, 2010Q1 Contribution to Eurozone’s GDP Growth, 2009Q4 Source(s): Eurostat and Manufacturers Alliance/MAPI

  12. Central European Growth is More Robust But Also Uneven • GDP Forecast, Czech Republic, Hungary, Poland (CEE3) Source(s): Eurostat and Manufacturers Alliance/MAPI

  13. 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

  14. Recovery Held Back By Depressed Bank Lending • Lending to the Private Sector Source(s): European Central Bank and Manufacturers Alliance/MAPI

  15. 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

  16. The Industrial Side of the Economy Holds Up Better Than the Rest • Manufacturing Growth Rates, 2010Q2 Source(s): Eurostat and Manufacturers Alliance/MAPI

  17. Industrial Rebound in Western Europe Will Be Short-Lived Manufacturing Production, Eurozone (Annual Percentage Change) Source: Eurostat and Consensus Forecasts and European Commission and Manufacturers Alliance/MAPI

  18. Central Europe’s Industry Will Post Few Weak Spots in 2010 Manufacturing Production, Central Europe (Annual Percentage Change) Source: Eurostat and Consensus Forecasts and European Commission and Unicredit and Manufacturers Alliance/MAPI

  19. Will the Eurozone Break Up? • Monetary Union as a Political Project • Politics trumps economics • But economic costs of break-up matter • What to Expect in Medium Term • Revisions to Stability-Growth Pact • New/improved fiscal rules • Institutionalized macro-prudential oversight? • Total Break-up vs. Individual Defections • High cost of individual countries leaving (e.g., Greece, Germany) • More probable than total break-up but probability still low • Sovereign defaults possible • Permanent improvement in regional imbalances unlikely even in long term

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