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The Greek economy recently reported a total gross domestic product of US$308 billion. Growth trends over the past three years haven’t been encouraging and have been accelerating into negative territory.Overall though, Greece is not one of the larger economies in the world. However, worries that it may default on its sovereign debt could have dire consequences for the rest of Europe and world. Below are five things U.S. consumers and businesses need to watch out for in the coming months.
Higher Bank Costs
For the most part, U.S.-based banks are not at all exposed to the financial struggles of Greece and the more embattled countries in Europe. This means no direct loans to Europe or other investments in these economies are held on bank balance sheets. The more internationally-focused U.S. banks do have some exposure. A recent USA Today article estimated that Bank of America had more than $15 billion in “credit risk” in the five riskiest economies in Europe. These countries are Portugal, Ireland, Italy, Greece and Spain, which have been called the PIIGS of Europe. Bank losses could lead to the need to increase costs, such as banking transaction fees to offset losses, but it’s not currently seen as a serious worry for domestic bank customers.
Slower Economic Growth
The main concern to come out of the debt crisis in Greece is the fact that a recession in Europe could spread to the rest of the world. Already, U.S. growth trends have been moderate. The unemployment rate has been stuck above 8% for at least a couple of months now, and more moderate manufacturing and other economic statistics have been coming in soft. Europe is receiving most of the blame. If Greece chooses to – or is forced to – abandon the euro and return to the drachma, contagion worries could indeed cause the global economy to slow for some time.
SEE: What The Double-Dip Recession Means For Countries Around The World
Another economic consequence of the Greek debt worries is if it slows economic growth and lessens U.S. exports to Europe. Additionally, the shipping industry is heavily concentrated with Greek firms. These firms actually weathered the 2008 financial crisis and ensuing global economic recession quite well. This was attributed to their focus on transporting tankers and dry-bulk ships that carry oil, chemicals and commodities. An economic collapse in Greece could cause the delay of salary payments and this could have huge consequences on any businesses that rely on overseas shipments.
Impact on the Election
The state of the U.S. economy is believed to be one of the most important factors in determining the winner of the Presidential election. A down economy can doom the incumbent, just as a strong economy can doom the challenger. In this respect, the situation in Greece could end up being a key determinant in the upcoming election. It may already be slowing global growth and the tepid U.S. recovery. With many important economic decisions hanging in the balance, the personal finances of domestic consumers and businesses hang in the balance.
SEE: Personal Finance And The Election
Direct Exposure to the PIIGS
Domestic consumers and businesses that count on any of the PIIGS countries for sales or supplies have the most obvious exposure to economic struggles in Europe. Tourism is the biggest industry in Greece. Some consumers are jumping on discounts to encourage travel to the country, but others are avoiding the destination altogether. Greece is also a heavy importer of machinery, transport equipment, fuel and related chemicals. Any firms with major Greek customers have already likely seen a negative impact on their operations.
The Bottom Line
The recent election results in Greece were encouraging and suggest it will find a way to honour its debt obligations and stay part of the eurozone. However, the situation remains poor and could end up negatively impacting economic trends throughout the rest of the world.
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This story was originally published by Investopedia.
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