Latest U.S. GDP Forecasts Make The Eurozone Crisis Look Way Over Hyped

Fake Bomb

You might have thought that disappointing surprises out of the Eurozone would reduce bullish U.S. GDP forecast. That hasn’t been the case.

U.S. GDP forecasts have actually been adjusted higher since bad news started pouring out of Europe, based on economists’ forecasts from the National Association of Business Economics (NABE).

Economists now expect U.S. GDP growth of 3.2% for both 2010 and 2011, up from 3.1% in February.


“Although risks involving Europe have recently escalated, the outlook in this country has improved in most respects,” said NABE President Lynn Reaser, chief economist at Point Loma Nazarene University.

“Growth prospects are stronger, unemployment and inflation are lower, and worries relating to consumer retrenchment and domestic financial headwinds have diminished,” she said.

The economists surveyed expect the unemployment rate to fall from 9.9% in April to 9.4% at the end of this year and to 8.5% by the end of 2011.

This is because while Europe has under-delivered year to date relative to expectations, the U.S. has over-delivered. Note that these NABE GDP forecasts are even below those of the Federal Reserve, who expects 3.5% and 4% GDP growth for 2010 and 2011 respectively.

To us it seems as if Europe poses an outlier risk, whereby there’s a small probability/high impact risk of a new global credit crunch, but most likely this doesn’t happen and Eurozone concerns are over-hyped, with global stocks going higher once this is clear.

Thus short-euro exposure via credit default swaps for Eurozone sovereign debt, euro-exposed stocks, gold, or currency seems like a reasonable hedge against such a calamity, so that one can get just hedge the risk of a Eurozone disaster and get on with things.

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