IMPACT OF EUROZONE SOVEREIGN DEBT CRISIS ON THE U.S. DR. RAJEEV DHAWAN DIRECTOR Roundtable Discussion at the joint conference of GIC and Banque De France in Paris • March 27, 2012
Some Possible Transmission Channels 1. Credit/Banking • •
Capital market freeze in the U.S. aka bank runs Reduced asset buying by Europeans, distress sales by them impacts US property markets (esp. Office and Industrial)
2. Product Demand • •
Trade disruptions esp. U.S. exports Lack of European bank credit reduces U.S. imports that implies less future demand for U.S. products
3. U.S. Sovereign Debt •
Makes us the “Cleanest Dirty Shirt in the Laundry Basket”
4. Indirect aka General Equilibrium Effects • •
China and emerging market slowdown impacts N. European capital goods exports, and adds to European recession woes Ongoing oil shock gets worse with the impending showdown with Iran
2011 U.S. International Trade Exports ($ Millions)
% of Total
Imports ($ Millions)
% of Total
1,480,665
‐
2,206,956
‐
North America
478,433
32.3%
579,616
26.3%
European Union
268,635
18.1%
367,799
16.7%
Germany
49,134
3.3%
98,401
4.5%
United Kingdom
55,964
3.8%
51,176
2.3%
France
27,844
1.9%
39,983
1.8%
PIGS *
20,656.8
1.4%
53,653.3
2.4%
Italy
15,991
1.1%
33,968
1.5%
China
103,879
7.0%
399,335
18.1%
Japan
66,168
4.5%
128,811
5.8%
87,487.8
5.9%
107,331.8
4.9%
Country
Total
BRIT **
* PIGS – Portugal, Ireland, Greece, Spain; ** BRIT – Brazil, Russia, India, Turkey
Gauging a Portfolio’s Exposure to Europe % revenue from Europe
Company Electronic Arts
43.5%
Intercontinental Exch.
40.0%
Dow30 Revenue Growth and Job Gains (%, Y-O-Y)
20%
2500
Q4 Growth only 6%
15%
2000 1500
10%
DuPont
38.0%
Goodrich
33.0%
Kraft
32.0%
-5%
Pfizer
24.6%
-10%
General Electric
21.0%
-15%
Ford Motor
13.7%
-20%
ExxonMobil
10.0%
Source: USA Today , September 30, 2011,
(‘000 Jobs)
1000 500
5%
0 0% -500 -1000 -1500 -2000 -2500 -3000 2001 2003 2005 2007 09q1 09q3 10q1 10q3 11q1 11q3
DOW 30 (Left)
Private Job Gains (Right)
Impact on U.S. Sovereign Debt Market China’s Trade Surplus 350 300 250 200 150
$ Billions
100 50 0 ‐50
1990
1993
1996
1999
2002
2005
2008
2011
Destination of Iranian Oil Exports % of Total China India Japan South Korea Turkey Spain Italy Greece France Others 0
5
10
15
Source: Wall Street Journal, January 6, 2012
20
25
GDP Forecast For the U.S. 2012
Base Case
No Euro Crisis
No China Slowdown
No Oil Shock
Potential Growth
I
1.5
1.9
2.1
2.5
3.0
II
1.5
2.0
2.3
2.6
3.0
III
1.6
1.8
2.2
2.7
3.0
IV
1.9
2.0
2.3
2.7
3.0
I
2.1
2.1
2.4
2.7
3.0
II
2.2
2.2
2.3
2.7
3.0
III
2.4
2.4
2.5
2.8
3.0
IV
2.6
2.8
2.8
3.0
3.0
2013
Special Thanks to the Center’s Executive Sponsors Carl R. Zwerner Chair of Family Owned Businesses
Sponsors