How Europe could drag down the United States, in one chart
By Brad Plumer,
Yesterday, the OECD announced that it expects the euro zone to grow just 0.2 percent next year, while the United States would grow a slightly more healthy 2 percent. Tim Duy thinks this is way too optimistic on both fronts. Already, there are signs that manufacturing in Europe is imploding — new industrial orders plunged 6.4 percent in September — and it’s unlikely that the U.S. can escape the downward drag. Duy posts a chart showing just how closely tied together the fates of the U.S. and European economies have been.
Notice that ominous blue drop at the end for European orders. Doesn’t bode well for the United States. Meanwhile, an earlier analysis from Citigroup had found that U.S. and Europe GDP growth have become increasingly correlated.
Indeed, it’s worth checking back on the OECD’s 2010 forecasts: the think tank greatly overestimated U.S. growth (it expected 2.6 percent; we got 1.7 percent) and underestimated euro zone growth (predicted 1.4 percent versus actual growth of 1.6 percent). In other words, the United States was expected to grow at twice the rate of Europe last year and the two economies ended up growing at about the same pace. That could be a sign that forecasting is just really tricky, or it could be a sign that the euro zone and U.S. economies have a tendency to converge.