Is Europe in a recession? How would that affect the US economy?

The European Union (EU) has entered a technical recession after reporting decreases in the economic zone’s gross domestic product (GDP) for two consecutive quarters. This judgment is made based on the economic performance of all countries that use the Euro as their common currency. In 2022, these countries saw GDP rise by 1.8 percent, but over the last two economic quarters, GDP has shrunk by 0.2 percent.

However, not all economic news from the EU is bad, with countries like Spain reporting the highest levels of employment in the country’s history. Nevertheless, like the US economy, EU countries have been wracked by inflation which has, in part, slowed economic growth in some places much more than others.

Additionally, focusing on these two quarters paints an inaccurate picture that doesn’t consider sizeable gains in GDP made by some of the countries. Ireland, for instance, saw the greatest growth in GDP of all EU countries in 2022. Even after two consecutive decreases, the country’s GDP remains well above the levels recorded before the pandemic.

The same is not true for the German economy, where GDP has fallen slightly below what was recorded in early 2019. Germany was one of the EU countries most impacted by Russia’s escalation of the war in Ukraine because of its dependence o Russian energy resources.

The impact of a recession in the EU on the US economy

The global energy crisis that ensued after the EU placed an import ban on Russian energy commodities and the inflationary pressure created by the breakdown of global supply chains in economies are two examples of how interconnected the global economy is. When trade is disrupted or when an economic crisis hits in one area, there are often notable effects on other economies. This is very much the case for the EU and the United States, who have, according to the EU, “the largest bilateral trade and investment relationship and enjoy the most integrated economic relationship in the world.”

The Bureau of Economic Analysis has tracked a 3.9 percent increase in the US imports destined for the EU in 2022 compared to 2019. In 2021, the EU reported that “transatlantic trade reached an all-time high of 1.2 trillion euro,” which happens to be ten percent higher than pre-pandemic levels.

If US imports in the EU take a nosedive, there would likely be economic consequences for the US economy. The recession currently being witnessed in the EU is small, with GDP only falling a fifth of a percent. However, if the trend continues, the US could begin to suffer economically if a recession across the pond leads to a reduction in consumption of US imports. Additionally, if the US dollar strengthens against the Euro, buyers in the EU may begin to look elsewhere for cheaper products as those they previously imported from the US become more expensive.