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Lack of European Exposure Could Hinder Opportunities

June 28, 2012

What started out as a private-sector problem in Spain is quickly becoming a sovereign debt issue, and we expect the austerity measures that are being implemented throughout Europe to result in a very poor outlook for economic growth there.

—Heather Brilliant, CFA, Morningstar

June 28, 2012

Global markets spent a good part of the second quarter giving up gains achieved during the first quarter, thanks to a bevy of bad news out of Europe and weaker economic data in the U.S. and China as well. We don't expect things to calm down in Europe for several years, as we commented last quarter, because even as shorter-term liquidity problems can be averted by European Central Bank actions, the underlying solvency problems are nowhere near fixed. What started out as a private-sector problem in Spain is quickly becoming a sovereign debt issue, and we expect the austerity measures that are being implemented throughout Europe to result in a very poor outlook for economic growth there.

As our director of economic analysis, Bob Johnson, has stated many times before, the good news is that the U.S. economy is not overly reliant on exports to Europe, with European exports constituting little more than 3% of U.S. GDP. In fact, changes in the price of gasoline are more likely to have a material impact on U.S. GDP than what happens with European or Chinese demand for U.S. exports.

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