Recovering US Economy is Vulnerable to International Instability from Emerging Markets and Eurozone, Economist Warns

Europe, Japan and emerging markets such as China need to ensure government support of their economies to prevent a global recession that could drag the slowly recovering US economy down with it, warns economist David Levy.

Though US economic data will be slightly altered for the next few weeks, the government shutdown won’t do any serious damage to the general economic outlook. However, there is still a lot to worry about for next year.

"While U.S. private financial vulnerability has been reduced somewhat since 2007, global financial vulnerability has increased," wrote the economist in a note from the Jerome Levy Forecasting Center.

Help from foreign trade and government direction should be able to help Europe recover from imbalances and slowly expand, but it has a few obstacles.

According to Levy, Europe need only “avoid the pitfalls of overcapacity, a crippled banking system, huge sovereign debt problems and constraints,” in order to not be a detriment to global economic health in the year ahead.

He also warned that long-term value investors should be wary of the region.

Emerging markets are another worry for the global economy and therefore the US. They are at risk of falling into recession unless they can focus on maintaining “stable exports and are surrounded by relatively calm international financial conditions.”

China in particular presents its own problem.

On Oct. 18, Reuters reported that Chinese GDP rose 7.8 percent in the last quarter, but it isn’t a trend. Only two of the ten previous quarters have seen a rise in GDP. Even if the country meets Beijing’s target rate of 7.5 percent, it will be their worst performance in 23 years.

China has lately taken on a restructuring effort to turn its economy more towards consumption rather than the exports and investment that buoyed nearly three decades of double-digit growth.

According to Levy, a growth rate of 7 percent next year is uncertain.

“The [Chinese] government remains caught between the need to provide fiscal and monetary support of the expansion and the desire to limit already severe financial imbalances,” he wrote.