Exporters should look past unstable Euro Area
International trade statistics at the start of the year show that foreign shipments from Michigan's companies rose in the first month of 2012.
The first snapshot of the year on state exports shows that sales abroad of goods made in the Wolverine State surged by $466.2 million to a monthly total of $4.70 billion in January, adjusted for seasonal variation, a statistical process that equalizes monthly performance for factors such as the number of days in a month and holidays.
In addition, 2012 started with two global economic shocks that have increased uncertainty on the future course of global trade during this year. First, oil prices have risen and fluctuate in a range of $100 to $110 per barrel, compared with a three-month average price of $86 at the end of last summer, reflecting a “geopolitical risk premium” from Middle East tensions.
The second adverse shock is the deepening recession in the Euro Area, the 17-country union that uses the euro as its common currency. Austere fiscal measures to hold down unsustainable debts, which led several countries near insolvency and, ultimately, the disintegration of the union, are expected to result in a substantial drop in economic activity in the Euro Area.
A major recession in the Euro Area — the second largest economy in the world, with an annual income of $11 trillion, which is three-fourths of the United States income — is estimated to have unfavorable spillover effects on all its trading-partner countries and, consequently, on Michigan’s exporting companies.
The Euro Area's recession has resulted in a reduction of consumer incomes, leading to a weakening in demand for goods, both domestic and imported. For the United States, American exports in January to the Euro Area registered $15 billion, which accounted for 12.7 percent of all national exports.
Looking at the state level, the dependency on or so-called exposure to the Euro Area's demand varies from a low of 2.9 percent to a high of 30 percent of total state exports.
How much do Michigan's exporting companies depend upon the economic health of the Euro Area? In the first month of this year, $303.9 million of goods made in Michigan were sold to Euro Area buyers, which accounts for 7.3 percent of all state exports.
Among the 50 states, Michigan ranks 41st for its exposure to the economic conditions of the Euro Area.
In comparison to January 2011, Michigan's exports to the Euro Area in January of this year declined by 3.2 percent. During the same period, state exports to all destinations in the world rose by 9.2 percent.
The exposure of Michigan's foreign sales to the Euro Area’s economic conditions and the outlook for 2012 are expected to have adverse effects on the overall volume of state exports, and thus export-related jobs, for the rest of this year.
Current trends and projections for the Euro Area suggest that Michigan's exporters should intensify their marketing efforts to other parts of the word — such as Asia, Africa and Latin America — to counterweigh the Euro Area’s recession.
Evangelos Simos is chief economist of the consulting and research firm e-forecasting.com. He may be reached at firstname.lastname@example.org