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CRISIS AND CHANGE IN EUROPE WHAT IT MEANS FOR U.S. BUSINESS. Presented by Kris Bledowski Economist and Council Director [email protected] 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

CRISIS AND CHANGE IN EUROPEWHAT IT MEANS FOR U.S. BUSINESS

Presented by

Kris Bledowski

Economist and

Council Director

[email protected]


Outline
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?


Despite growing importance of asia trade with europe weighs big
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


And the european share of fdi flows dwarfs other regions
… And the European Share of FDI Flows Dwarfs Other Regions Big …

  • 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
Income Convergence Inches Ahead But the Pace is Slow Big …

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
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
Volatility of Cyclical Change is Down This Decade 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
Leverage Ratios Vary Widely; So Do Relative Changes Decade

Liabilities of Non-Financial Corporations, percent of GDP

Source(s): Eurostat and Manufacturers Alliance/MAPI

* 2008; all others 2009


All countries grew exports some also improved competitiveness
All Countries Grew Exports; Some Also Improved Competitiveness

Exports and Wages, 2000-2007

Source(s): Eurostat and Manufacturers Alliance/MAPI


All countries are productive some control costs better than others
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


Eurozone consumers are absent weak growth supported by public spending
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


Central european growth is more robust but also uneven
Central European Growth is More Robust But Also Uneven Public Spending

  • GDP Forecast, Czech Republic, Hungary, Poland (CEE3)

Source(s): Eurostat and Manufacturers Alliance/MAPI


Lending conditions are easing and economic climate is up
Lending Conditions Are Easing and Economic Climate Is Up Public Spending

  • 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
Recovery Held Back By Depressed Bank Lending Public Spending

  • Lending to the Private Sector

Source(s): European Central Bank and Manufacturers Alliance/MAPI


Costs of financial rescue packages have been modest so far
Costs of Financial Rescue Packages Have Been Modest So Far Public Spending

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
The Industrial Side of the Economy Holds Up Better Than the Rest

  • Manufacturing Growth Rates, 2010Q2

Source(s): Eurostat and Manufacturers Alliance/MAPI


Industrial rebound in western europe will be short lived
Industrial Rebound in Western Europe Will Be Short-Lived Rest

Manufacturing Production, Eurozone (Annual Percentage Change)

Source: Eurostat and Consensus Forecasts and European Commission and Manufacturers Alliance/MAPI


Central europe s industry will post few weak spots in 2010
Central Europe’s Industry Will Post Few Weak Spots in 2010 Rest

Manufacturing Production, Central Europe (Annual Percentage Change)

Source: Eurostat and Consensus Forecasts and European Commission and Unicredit and Manufacturers Alliance/MAPI


Will the eurozone break up
Will the Eurozone Break Up? Rest

  • 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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