Mass. feels repercussions as Europe falters
Heat Trace Products LLC, a Leominster manufacturer of cables for heating and cooling, weathered the 2008 recession by finding international markets for its products. Today, Europe accounts for more than one-third of its sales.
But now, with regular doses of bad economic news from Europe, company officials worry about another economic crisis, one that will again put the firm’s profits and jobs at risk.
“Up to this point we have had a banner year, but we keep close contact with our associates in Europe,’’ said Deborah DiIorio, the company’s vice president of sales. “A sudden crash would be very detrimental for us.’’
Heat Trace Products is just one example of the close economic ties between Massachusetts and Europe - ties that could suffer if already dismal conditions across the Atlantic worsen. At the broadest level, a crisis in Europe - “unfolding like a train wreck in slow motion,’’ according to one economist - has the potential to damage the fragile US recovery, which undoubtedly would harm the Massachusetts economy.
But Massachusetts also relies more heavily on European commerce than other parts of the country. Europe accounts for 40 percent of Massachusetts exports, the largest share of any major industrial state and nearly double the US average. European companies invest billions of dollars in Massachusetts and employ more than 100,000 workers in the state. European tourists account for nearly half of all spending by international visitors to the state.
Northeastern University economist Alan Clayton-Matthews said Massachusetts’ trade with Europe represents a relatively small slice of the state’s $379 billion gross product. Yet even small declines in European demand at a time when the economy is fragile could spell problems.
“Any more loss in demand can result in more job losses, income losses,’’ Clayton-Matthews said. “And those can add up.’’
The crisis in Europe was sparked by mounting national debts, slumping economies, and fears that defaults by Greece and other nations could undermine the global financial system. So far it appears to have had a minimal impact on the Massachusetts economy, but there are hints of a slowdown already underway.
The number of European tourists traveling to Massachusetts, for example, fell by 5 percent last year, according to the US Department of Commerce. While visitors from the United Kingdom and Germany increased, those gains were more than offset by declines of 22 percent in tourists from the Netherlands, 20 percent from Italy, and 42 percent from Ireland.
Jim Kelly, who specializes in travel to Ireland at Crystal Travel in West Roxbury, said Irish bookings are down at least 50 percent from the peak four years ago, when the Irish economy was booming. Today, Ireland is struggling with crushing debt and high unemployment.
“You couldn’t get a seat from Ireland into New York or Boston in the off-season,’’ Kelly recalled. “That’s all gone.’’
Massachusetts is the fifth most popular destination among Europeans, after New York, Florida, California, and Nevada. Last year, Europeans spent nearly $1 billion of the $2.1 billion that foreign travelers pumped into the local economy last year, more than any other international group.
“It’s a huge market for us,’’ said Betsy Wall, executive director of the Massachusetts Office of Travel & Tourism. “We’d be foolish not to pay attention to world events.’’
International demand for the state’s technology products has helped fuel the state’s rebound, and overall exports to Europe - about $11 billion a year - were growing steadily through much of this year. But in August, when concerns about Europe’s debt problems hit fever pitch, the state’s European exports fell by 25 percent compared with a year earlier, according to the World Institute for Strategic Economic Research, a nonprofit research group in Leverett.
For EMC Corp., the state’s largest tech firm, Europe, Middle East, and Africa account for nearly 30 percent of revenues. When the company reported its second-quarter earnings this summer, EMC chief executive Joseph M. Tucci told analysts that sales in southern Europe had weakened.
“That said,’’ he added, “these countries make up a very small percentage of EMC’s consolidated revenues. But their impact on Europe as a whole represents an additional risk factor.’’
European trade accounts for about 35 percent of shipments through the Massachusetts Port Authority’s cargo terminal in South Boston. In the last three months, shipments to and from northern Europe, including Germany and France, were up 6 percent from a year ago, said port director Michael A. Leone. But cargo between Boston and southern Europe, including Greece, where the economic crisis is centered, slipped 2 percent during the same period.
“It’s been steady considering the economic upheaval there,’’ Leone said. “Certainly it’s something we continue to monitor.’’
Europe is also a key market for the state’s biotechnology and pharmaceutical industries. The continent accounts for nearly 40 percent of the market for many drugs and medical devices, about the same share as North America, according to industry estimates.
Sales haven’t yet suffered from the convulsions in Europe, but many companies are expecting the cash-strapped nations and their national health care systems to demand lower prices to approve new drugs, pressuring the profit margins of pharmaceutical firms. In turn, lower profits for major drug makers could mean less investment by them in the state’s biotechnology industry.
“The macroeconomic issues, especially the debt crisis in Europe, have a direct impact on the biotechnology companies,’’ said Harvey J. Berger, chief executive at Ariad Pharmaceuticals Inc., a Cambridge biotech awaiting US and European regulatory approval of a cancer treatment. “It makes it harder to access the markets for investment capital. And it makes the European governments look for ways to cut expenses.’’
European turmoil also has implications for the region’s commercial real estate market. On the positive side, economic weakness overseas could spur more investment in Boston properties as European investors seek safer places to put their money until better times.
On the negative end, there are fears that escalating problems in Europe and a slowdown in China could continue to impede job growth - growth badly needed to improve the region’s sluggish office market. Unless businesses hire and expand, rents will remain too low for developers to build new office towers.
“Slowing job growth is not healthy for our real estate economy,’’ said David Begelfer, chief executive of NAIOP, a commercial real estate association. “If Europe and China continue to have problems, it will mean more than the US just catching a cold; it will be like getting the flu.’’
Some of Europe’s problems have already made an impact. Anglo Irish Bank of Dublin was a major lender in Westwood Station, one of the state’s largest mixed-use development projects, but became insolvent when a real estate bubble in Ireland burst a few years ago.
As a result, Westwood Station fell into a legal and financial morass that continues today. It remains unclear if or when the project will resume.
Robert Weisman, Katie Johnston, Casey Ross, and D.C. Denison of the Globe staff contributed to this report. Megan Woolhouse can be reached at firstname.lastname@example.org.