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Utah's economy lately has been on a roll, but serious trouble may lie ahead.
If the European Union slips back into a recession — a development that many economists consider increasingly likely given the financial turmoil in that region of the world — Utah will get hit harder than any other state, according to a report by Wells Fargo Securities.
"While the effect of a European recession may be relatively modest on the U.S. economy as a whole, there are a handful of states that may be more vulnerable," Mark Vitner, senior economist at the North Carolina-based firm, wrote in a report produced with fellow economist Michael Brown.
Vitner pointed specifically to Utah, noting that 5.6 percent of the state's economy is tied to exports to that part of the world. And more than half of Utah's exports to Europe — 52 percent — consist of gold and silver, most of which is shipped to the United Kingdom.
"With so much of Utah's exports going to Europe in the form of gold and silver, it is at a lot greater risk than other states. And that could be especially true if the mild recession that we are expecting turns out to be worse than anticipated," Vitner said.
In that case, the price of gold and silver could drop dramatically. And that could impact the profits of Utah companies such as Kennecott Utah Copper, whose Bingam Canyon Mine produces most of the state's precious metals.
Lew Cramer of the World Trade Center of Utah, a group that seeks to boost the state's economy through international business, hopes that some of that damage could mitigated.
He points out that much of the gold and silver produced in Utah is exported to Great Britain, primarily because it is home to the London Gold Exchange. "From there a lot of that gold and silver makes its way to China and India."
Although he thinks that could reduce some of the risk from a European recession, he concedes that Utah probably wouldn't escape all of the fallout considering that the state also exports large amounts of high-tech equipment, including medical devices and aerospace and automotive equipment (such as air bag components), to that area of the world.
"No one wants to see a recession in Europe," he said.
Vitner and Brown said West Virginia also is among the states that could be hard hit by a European recession, mainly because of its coal exports. "Demand for coal tends to move closely with GDP growth, so some softening in sales seems likely," they wrote.
South Carolina and Alabama have "somewhat strong ties to Europe" because of automobile production. Kentucky, Connecticut and Washington have trade in aircraft and aviation parts. "Air travel is also correlated with GDP growth, and a slowdown will cut into demand for replacement parts," the report said.
European economic growth failed to accelerate in the third quarter, the European Union said Nov. 15. Gross domestic product increased 0.2 percent from the previous three months, when it rose at the same pace.
Growth may slow in the fourth quarter as leaders press for austerity measures in Greece, Italy and Spain to avoid debt defaults. European Central Bank President Mario Draghi warned of the risk of a "mild recession" when the ECB unexpectedly cut its benchmark interest rate a quarter-point to 1.25 percent in early November.
Bloomberg News contributed to this story.
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