Exchange Rate Euro – Scenarios That Could Impact on The US Economy – Part 2

May 8th, 2012

In part 1, we discussed how the exchange rate euro and current storms in Europe could have devastating affects on the US economy. If it wasn’t for the cushioning offered by the recent broadening and strengthening of U.S. growth in favour of investment and consumption, some damage could have already been done. At the moment the mild euro recession and exchange rate euro has not had a huge impact on Americas economy, as reliance on export has declined as a result of increased consumer spending and business investment. Best Exchange Rates UK takes a look at some Euro crisis scenarios that have the potential for greater impact on the US economy.

What if Europe was to dip into a much deeper and longer recession? Would this then begin to have an impact on America? This would doubtlessly affect US trading partnerships with Europe but since the US as a whole is not currently reliant on trade – the impact would still not be significant enough to have a huge impact.

Now let’s consider a serious Euro meltdown throughout the European Union. This situation would significantly reduce the continents appetite for importation which would be economically damaging to China – the exchange rate euro would make buying goods through foreign exchange of the very strong Yuan, extremely unattractive. Europe is by far China’s largest export market.  Thus a euro-zone recession would cause a slump in China which would drag other countries down with it, like the Asian countries that feedChina’s manufacturing machine. This in turn would cause a global problem, not exclusive of theUS.

It is estimated that deepened slowing in Europe would hit coal mining in Virginia and precious metal demand in Utah. In addition auto and manufacturing of plane parts in many locations across the US would be affected. Services sectors like tourism, the financial markets, software and engineering would also be hit hard.

Finally we consider the very worst case scenario – complete financial meltdown. This would be marked by a 40 percent decline in world equity prices, a widening of credit spreads which would make business and consumer confidence plummet and result in a complete global downturn. This would likely result in a deep depression, not just for Europe and exchange rate euro but for the global economy, that not even the US could escape.