COLUMBUS, Ind. — The United States will slip into a recession no later than the first quarter of next year, a Ball State University economist predicted Wednesday as the U.S. market finished down on more sour economic news from Europe.
Europe already is in what will be determined to be a recession, said Michael Hicks, director of the Center for Business and Economic Research and an associate professor of economics at Ball State University.
Recessions generally are defined as two consecutive quarters of economic decline.
Since the 1960s, each time Europe has entered a recession, the U.S. has soon followed, he said.
“I think it would be a deep historical anomaly for the U.S. not to be in recession at about the same time or shortly after Europe enters one,” Hicks said.
Economic woes in Europe on Wednesday worsened with Spain seeing its borrowing costs rise. The Spanish stock market plunged to a nine-year low. Major U.S. stock indices fell more than 1 percent Wednesday. The Dow Jones industrial average fell nearly 161 points as fear spread that the financial crisis was expanding from Greece to Spain.
“I’m mistrustful that financial markets have fully absorbed ... a dissolution of at least part of the Euro zone,” Hicks said.
Economists for months have wondered whether Greece will exit the euro zone, possibly followed by other countries, including Spain and Portugal.
While the impact today would be less severe than a year ago, Hicks said, an exit of any country from the euro zone would be “unexpectedly painful.”
Economic woes in Spain will hurt Indiana probably more than most other states, said Jerry Conover, director of the Indiana Business Research Center at Indiana University’s Kelley School of Business.
In 2010, Spain was among Indiana’s top 10 export markets, along with Germany and France, according to a Kelley School study released in November. The value of Indiana’s exports to Spain in 2010 reached about $942 billion, more than double the value of exports in 2009.
About 80 percent of the total commodities exported to Europe were in pharmaceutical products, organic chemicals, optical and medical instruments and industrial machinery.
“We rely on foreign buyers picking up a lot of output of Indiana factories,” Conover said.
If Spanish companies are having trouble getting financing or finding customers, they are less likely to purchase goods and services from Indiana, he said.
Hicks said the U.S. and European economies further will be hampered by an economic slowdown in China, which just announced an economic stimulus package of nearly $400 billion.
With recessions in Europe and China, the U.S. is sure to follow, Hicks said.
“I just don’t know how the U.S. avoids it,” he said.
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