Forecast: U.S. Should Grow Despite Euro Recession

A drop in exports to Europe would slightly affect U.S. GDP
A lone office worker walks through the La Defense business district in Paris Photograph by Balint Porneczi/Bloomberg

Can the U.S. avoid contagion from Europe’s steadily worsening economic mess? An Oct. 24 report from Capital Economics, a U.K.-based consultancy, says yes. “We expect the euro zone to experience a deep recession next year but the U.S. to grow steadily,” writes Andrew Kenningham, a London-based senior global economist. Capital Economics is looking for gross domestic product to rise 2 percent in 2013 in the U.S. while falling 2.5 percent in the 17-nation euro zone.

The U.S. and European economies usually move together because they’re affected by the same forces, such as ups and downs in oil prices. In this case, though, Europe is facing a “region-specific shock” that hasn’t hit the U.S., Kenningham notes. The euro zone crisis has also been slow-moving, so U.S. firms have been able to brace themselves.

The U.S. economy has made more progress than Europe has in “addressing the legacy of the 2008 crisis,” Kenningham writes, noting the decline in household debt, the rebound in the housing market, and the recapitalization of the banks.

Another factor in America’s favor, which Kenningham didn’t mention, is that the U.S. is less dependent on exports than euro zone countries are. So even if exports to Europe fell significantly because of a slump in demand, it wouldn’t produce a big hit to total U.S. output.

Kenningham’s bottom line: “We doubt that even a deep recession in Europe would be sufficient to snuff out the U.S. recovery completely.”

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