June 24, 2012

Export-dependent Wichita watching European economy

There’s a great big question mark hanging over Europe right now, and no one is watching closer than Wichita companies.

There’s a great big question mark hanging over Europe right now, and no one is watching closer than Wichita companies.

Wichita is the most export-dependent city in America, according to a recent study by the Brookings Institution.

With its big aircraft, machinery and agricultural sectors, exports produced about 20 percent of the area’s economy in 2010, according to the study. About 60 percent of the value of those exports comes from aircraft and aircraft parts sales.

And Europe is the biggest, or one of the biggest, destinations outside of the U.S. for aircraft-related products and services.

European leaders have so far pushed off the most dangerous possibility, a sudden and violent financial crisis caused by the default of Greece, Spain or some other country, or by their main creditors, the large European banks. But they haven’t revived growth.

European economies are on the edge of recession, with zero growth in the first quarter, following a 0.3 percent decline in the quarter before. That has led to reduced demand for Wichita area exporters. And Europe’s weakness hurts other regions of the globe, which means reduced demand elsewhere. Europe’s problems have also weakened the euro, which pushes up the dollar, raising the cost of American products overseas.

Some experts worry that Europe’s economic problems are settling in for a long time, similar to Japan’s “lost decade.”

On Friday, the leaders of Germany, France, Italy and Spain agreed on a $156 billion package to spur growth, equal to about 1 percent of the eurozone economy. But German Chancellor Angela Merkel continued to resist pressure from the other three to mutualize Europe’s debts or use existing bailout resources more flexibly.

The longer they wait to take decisive and effective action, the more it seems to drag the world economy down, say economists.

“If you want to know when this will be over, that seems to be forever,” said Terence Decker, a professor at Wichita State University. “I’ve watched for months, now years, and no end seems to be in sight.”

Wichita’s exporters

Wichita’s aircraft makers are Kansas’ biggest exporter and Europe is one of their biggest markets.

But that market appears to be shrinking. The share of U.S.-made business jets going to Europe fell from 26.3 percent in 2009 to 22.8 percent in 2010 and to 19.5 percent in 2011.

And many worry that the economic doldrums – or worse – will be around for years.

“It’s something that they’re really worried about,” said Katie Pribyl, spokeswoman for the General Aviation Manufacturers Association.

One sign of encouragement was a jump in the number of exhibitors at the European Business Aviation Convention and Exhibition in May.

But such glimmers seem faint. While Bombardier is forecasting that Europe will grow 1.9 percent a year over the next 20 years, this year it sees a shrinking European economy.

“Europe is still challenging,” said Bombardier spokeswoman Danielle Boudreau. “We are waiting for the economy to bounce back.”

Wichita’s agricultural companies have been seeing terrific export growth, but that’s because much of the demand for food is so basic.

Justin Gilpin, CEO of the Kansas Wheat Commission, said that while economic conditions and exchange rates may raise or lower the demand for American wheat from year to year, the biggest factor is how well harvest went in other wheat-growing regions of the world. This year, the wheat harvest in Russia and Ukraine didn’t go so well, so there will be strong demand for American wheat.

“Like they say, ‘People got to eat,’ ” he said.

For most companies, said Karyn Page, president of the Kansas World Trade Council, there’s a lot of watching and waiting.

“It’s certainly a topic of conversation with companies in Kansas and the people I work with around the nation: What’s going to happen? How will that affect me? The consensus is that nobody really knows what’s going to happen.”

Contributing: The Associated Press

Correction: An earlier version of this story misspelled the Brookings Institution.

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