Where ever you see in the media, the talk of impending inflation is being discussed. US Federal Reserve has promised that they will try to counter inflation by raising interest rates to at least 4% or higher for next little while.
Most Economic forecasters are predicting slowdown in China and Europe due to the property markets in the first case, and due to energy crises precipitated by the war in Europe and resulting increase in natural gas prices for most west European countries.
With this backdrop, economists are also saying that there is a good chance that US will not get too impacted by the slowdown in Europe. This is because US is mostly energy self-sufficient and its economy though over-heated does not seem to be showing signs of impending recession.
The contrary view could be
a) US and Canada will not remain unscathed and will also suffer a recession
b) Europe itself will be able to avoid a recession.
Let's see both these scenarios one by one.
Scenario A: US will also enter a recession
This is a possibility that cannot be ruled out, as United States while self-sufficient in food and energy is still the 2nd largest goods exporter, as well as the world's largest services exporter. While Canada is the biggest buyer of US goods (almost 18% in 2019), almost 25-30% goods are bought by European Union, UK and China.
On the services side as well, European Union, UK and China together bought 30% of US Services exports, which itself forms 35% of the total US exports.
Depending on the severity of recession in Europe and China, its likely that some of the impacts will be felt in the US as well.
If this happens, the sectors that will get impacted the most will be high tech, since in my naive understanding, most US exports will be high technology.
Scenario B: Europe avoids a recession
The only way this can happen is if Europe finds alternative ways to deal with its looming energy crisis. That seems increasingly difficult to pull off. If the recession proves inevitable, then it will invariably be the European manufacturing that may get affected by energy shortages. It is likely also the sector that drives the reduced demand for US goods and services exports.
Conclusion
Unless Europe finds a way to keep its industries running during the winter, it is inevitable that the downturn in Europe will spread to United States. The optimism in the US in avoiding the recession may be misplaced, and the increase in interest rates to cool down the economy in US and Canada may turn out to be premature.
