The United States could avoid recession, but it will continue to suffer if the European economy collapses

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  • Several US bank executives have recently said they don’t believe the US is on the verge of a recession.
  • Europe might not be so lucky though, and that would also impact the US economy.
  • The European Union accounted for about 15% of US exports in 2021, and a recession could dampen that demand.

Some experts believe that the United States already in recession. Some think it’s Go over there. Others say the United States will avoid one altogether. But even if the country avoids its second recession in three years, a struggling European economy could hamper US growth for years to come.

As several major banks reported profits over the past week, investors and economists have been poring over comments from bank executives for signals that a recession is on the horizon. Despite inflation-adjusted earnings falling at their fastest pace in 40 years and consumer sentiment nearing an all-time low, earnings commentary took on a decidedly optimistic tone.

“While the sentiment has changed, little data I see tells me that the United States is on the verge of a recession, said Jane Fraser, chief executive of Citigroup. said last Friday, citing strong consumer spending and a tight labor market.

But while the data may currently suggest that recession claims are unwarranted, the United States is not off the hook just yet. Although the Federal Reserve plays its role Well, a weak European economy could dampen the country’s economic growth, making it more difficult for the central bank to achieve its desired “soft landing.”

“We expect a very difficult winter to come,” said Citigroup’s Fraser. said of Europe, “and this is due to disruptions in energy supplies”, adding that this is “obscured by the belief that the war in Ukraine will not end any time soon”.

If the banks are to be believed, the European economy is indeed weakening, driven by the continent’s exposure to the war in Ukraine and the energy crisis. As in the United States, inflation is also on the rise – prices in the European Union rose by 8.6% in June.

If the European economy weakens, the United States will not be able to escape unscathed. In 2021, the United States exported more than $270 billion of goods to the European Union, representing approximately 15% of all exports. A weakened European economy could mean fewer exports – and sales – for American companies.

In 2020, the United States main European exports were aerospace products and parts, mineral fuels and machinery. Texas, California and South Carolina exported more goods to Europe than any other state.

James Gorman, CEO of Morgan Stanley said that while the United States and Asia could be entering some form of recession, Europe “is fighting the hardest right now because of the war in Ukraine, because of the pressure on gas and gas prices.

It’s not just the banks that are worried about the European economy. “For Europe, the risk of recession is real”, according to the British research firm Oxford Economics said in a report last week. A Bloomberg survey of analysts in the first week of July put the probability of a recession in Europe at 45%, up 30% from the previous month’s survey.

This Thursday, the European Central Bank is Meet to discuss the path of interest rates going forward. As the economy heads into a recession, one would expect the central bank to lower interest rates to encourage borrowing and spending. However, high inflation in Europe is also a concern and the bank may decide that higher interest rates are needed to stifle it.

A rate hike would also support the euro, which has fallen to a 20-year low against the US dollar. The weaker euro has made US imports more expensive for European consumers and businesses, another development that could discourage spending and hurt US businesses.

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