Eurozone Troubles Cause Connecticut Ripples
Europe’s economy is in trouble. Just last week, the European Commission said it believes the continent is about to see a second consecutive year of economic contraction. That could be bad news for some companies in the Nutmeg state, as WNPR’s Sujata Srinivasan reports.
Connecticut exports nearly 16 billion dollars worth of mostly high-tech products annually. So an economic contraction in the Eurozone, projected for the second year in a row, will affect companies here – Europe absorbs more than one-third of the state’s exports. Connecticut Economic Resource Center economist Alissa DeJonge:
“If the Eurozone isn’t doing well, and if they start to slip into a recession which it looks like they are, their demand for Connecticut goods and services could really diminish. So that could be a risk for some of our Connecticut companies going forward.”
But this doesn’t mean Connecticut exporters to the Eurozone will experience losses overnight. That’s because the majority of exports are niche, high-tech products such as aerospace parts, made by Aero Gear in Windsor. Orders are based on long-term contracts and European multinational companies have steady demand from emerging markets, whose economies are expanding. Still, many companies are holding back on new orders to suppliers, says CEO Doug Rose.
“Even though Europe is in a downturn right now, they’re supplying products for a global market. So as long as aerospace is growing in general, they’re okay. But certainly things right now are stagnant or are kind of flat. I think a lot of companies both here and in Europe are in kind of a holding pattern, waiting to understand what’s actually going on the marketplace.”
Flat is good, says Rose; it’s better than down. In the long-term though, his strategy is to diversify by selling elsewhere in the world. Around 40 percent of the company’s annual revenue comes from exports – the goal is to grow this to 50 percent.
“We’re a small independent company. So we don’t have the wherewithal to reach out to the Asian markets and sometimes it’s hard for us to understand what are real opportunities and what are not real. In the future we’ll need to learn how to get business from those areas as well.”
State officials are trying to help exporters to smooth out the policy process and find new markets. Catherine Smith is commissioner of the Department of Economic and Community Development.
“We looked at existing exports. It was France, Germany, Canada – those are the top three players. And those exports, we don’t expect them to grow much in the next couple of years. You know, Europe is still struggling. I will say Canada – I have a lot of optimism about. We have actually done an assessment now of all the different global economies and we’ve selected a few that we think we can really do a good job on in growing our exports and by the way also growing foreign direct investments from. So those would include China, but we’re also looking at places like Brazil and Israel and continuing to work on some of the growth areas of our existing partners.”
Speaking to businesses in Farmington last month, Anne Evans, District Director for the U.S. Department of Commerce, said government assistance helped Connecticut exporters receive multi-million-dollar orders last year from the U.K., the Middle East, South Africa, New Zealand, Kazakhstan and China. Evans is now working with state officials to help exporters affected by defense cuts in Europe.
“From an aerospace point of view, Europe is still very good. For defense, all budgets throughout Europe have been scaling back so that’s been a little problematic. So those folks are seeing some problems and we’re looking to other markets for them.”
Defense spending cuts will particularly affect businesses with limited exposure to commercial markets, such as RSL Fiber Systems in East Hartford. One of the fastest-growing tech companies in the state, RSL makes lighting systems mainly for navy ships. Nearly seven percent of its annual revenue comes from exports – all of which is to Fincantieri, a shipbuilder for the Italian Navy. RSL CEO Giovanni Tomasi wants to expand to commercial markets.
“Part of our thrust into the commercial market in the U.S. and also foreign is because we see some cuts coming in defense spending not just in the U.S., but in Europe as well. So it makes sense for us to be in multiple industries.”
Tomasi is planning to diversify in European commercial sectors – such as the recession-proof luxury yacht industry – and also elsewhere to meet future revenue targets.
“We’re focusing on parts of Europe. We went to the United Arab Emirates last year because of all the work done in the oil industry. We’re looking at Australia because of the coal mining industry out there. So we see eventually export being as much as 15, 20 percent of our revenue.”
The International Monetary Fund expects global economic growth to improve by 0.3 percent this year. That doesn’t seem like much. But high-tech exporters in the state hope it will be enough. The U.S. Department of Commerce target growth for Connecticut exports is around 15 percent this year.
For WNPR, I’m Sujata Srinivasan