Can the U.S. Decouple From the Eurozone?

The OECD cut forecasts for 2012.  Via the Wall Street Journal:

The Paris-based think tank cut its forecasts among its 34 members to 1.9% this year and 1.6% in 2012, from 2.3% and 2.8% in May. The OECD said it expects the euro zone’s economy to contract by 1% at an annualized rate in the last quarter of this year and by 0.4% in the first three months of 2012.

For 2012, the OECD said the 17-country bloc’s economy will only grow by 0.2%.

This is far too optimistic.  The European economy is about to fall over a cliff, and last week’s Eurostat report on new industrial orders reveals that manufacturing is leading the way.  New orders fell by a whopping 6.4%, a move that hearkens back to the darkest days of 2008.  Will the US be able to resist the pull of the European downturn?  These charts don’t offer much optimism:

Not a perfect match, but enough to suggest the idea of substantial decoupling looks like more myth than reality, especially in the face of a severe recession.  Could this be why US Treasury yields held steady today even as equities roared forward?

Bottom Line:  Don’t take US resilience for granted this time around – Europe is getting ugly, and it is far too late to prevent severe recession.  The best policymakers can hope for at this point is too avoid a depression.

About Tim Duy 348 Articles

Tim Duy is the Director of Undergraduate Studies of the Department of Economics at the University of Oregon and the Director of the Oregon Economic Forum.

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