Area Economy

Euro Area proves troublesome for Michigan exporters

March 29, 2013
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Foreign shipments from Michigan’s companies declined in January. In addition, 2013 started with news about increased uncertainty on the future course of global growth and international trade.

In the last quarter of 2012, the Euro Area posted its third consecutive negative growth rate in terms of output, confirming a recession for the 17-country group that uses the euro as a common currency. The United Kingdom's economy contracted by an annual rate of 1.2 percent, and in Japan, the world’s third-largest economy, overall production fell by an annual rate of 0.4 percent, also marking the third consecutive decline in economic activity and signaling a new Japanese recession.

A double-dip recession in the Euro Area — the second largest economy in the world with an annual income of $11 trillion — is expected to have unfavorable spillover effects on all of its trading partners, and consequently on Michigan's exporting companies that sell products to major European markets such as Germany, France, Italy, the Netherlands and Spain.

The Euro Area's recession has resulted in a reduction of consumer incomes, leading to a weakened demand for domestic and imported goods. For the United States, exports to the Euro Area accounted for 11.9 percent of all national exports, which is a measure of the so-called American dependency on the Euro Area's economic conditions.

Looking at the state level, the dependency of exporting companies on the Euro Area's demand varies from a low of 1 percent to a high of 35 percent.

How much do Michigan’s exporters depend on the economic health of the Euro Area?

In the first month of this year, $303 million worth of goods made in Michigan were sold to the Euro Area's buyers, which accounts for 6.8 percent of all state exports. Michigan ranks 41st nationally in its exposure to the economic conditions of the Euro Area.

The first snapshot of the year on international trade shows that exports of goods made in the Wolverine State fell by $105.9 million to a monthly total of $4.85 billion in January, adjusted for seasonal variation.

In comparison to January 2012, this year Michigan's exports to the Euro Area declined by 0.3 percent. During the same period, state exports to all destinations in the world rose by 7.3 percent.

Current economic trends and annual forecasts 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 counteract the Euro Area’s double-dip recession.

Evangelos Otto Simos is chief economist of consulting and research firm e-forecasting.com. He may be reached at eosimos@e-forecasting.com.

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