Economist
February 6, 2012
With America's economy seemingly accelerating toward a pleasing hum, several-times-bitten writers are looking about on the horizon for signs of imminent doom, of the sort that squelched bouts of optimism in 2010 and 2011. And looming large and ugly, as it did in 2010 and 2011, is Europe. What are the odds that continued European crisis will throw sand into the gears of America's recovery?
Paul Krugman points out that America's trade exposure to Europe is relatively small, and I think it's very unlikely that the trade channel has a significant, negative impact on America's economy. European demand will probably be a small drag on America no matter what. If Europe's periphery adjusts quickly then its net exports to America should hold steady (offsetting reduced exports from the core) or rise, keeping the euro area out of a deep recession and holding down the contribution of European demand to American growth. And if Europe's periphery doesn't adjust quickly, well, the resulting deep recession will be the thing that holds down the contribution of European demand to American growth. Rising American demand will primarily be driven by increased domestic spending and investment and improved sales to non-European markets.
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