Strong euro wor­ries Europe’s ex­porters, but lit­tle risk seen

Kuwait Times - - BUSINESS -

PARIS: Some Euro­pean ex­porters are be­gin­ning to worry about the strength­en­ing euro which has re­bounded from near par­ity with the dol­lar af­ter Don­ald Trump’s elec­tion, though an­a­lysts see lit­tle im­me­di­ate risk to growth.

Europe’s sin­gle cur­rency surged on Wed­nes­day to $1.1910, its high­est level since early Jan­uary 2015, be­fore re­treat­ing to $1.1770 late Fri­day. For Euro­pean busi­nesses heav­ily re­liant on ex­ports, es­pe­cially in Italy and France, the strong euro could hurt the bot­tom line.

“There’s a gen­eral ner­vous­ness that this strong euro is be­gin­ning to im­pact Euro­pean cor­po­rate prof­its-we are start­ing to see it in this quar­ter’s re­sults,” William Ham­lyn, in­vest­ment an­a­lyst at Man­ulife As­set Man­age­ment, told AFP.

Still many an­a­lysts say eco­nomic fun­da­men­tals are in fa­vor of the euro, com­pared to the weak dol­lar and the fee­ble pound which has been ham­mered ever since Bri­tain voted last year to exit the Euro­pean Union. And the im­pact of a strong euro is dif­fer­ent depend­ing on the coun­try. Ger­many, Europe’s big­gest econ­omy, has noth­ing to fear for the mo­ment, said Beren­berg Bank economist Hol­ger Sch­mied­ing, not­ing the euro is still far from its long term equi­lib­rium rate of $1.25.

Only about a quar­ter of Ger­man ex­ports are pegged to the dol­lar, said Ilja Noth­nagel, In­ter­na­tional ex­pert at the Ger­man cham­bers of com­merce DIHK.

Italy would be the coun­try “most af­fected by the in­crease in value of the euro,” said Lu­dovic Subran, chief economist at trade credit-in­surer Euler Her­mes. “If the dol­lar/euro rate should re­main sta­ble at this level, we will be at a disad­van­tage,” ad­mit­ted Li­cia Mat­ti­oli, vice-pres­i­dent for in­ter­na­tional af­fairs at the Ital­ian em­ploy­ers’ or­ga­ni­za­tion Con­find­us­tria.

“The ef­fect would be cross­wise on our ex­ports, which have grown the past few years to­wards Amer­ica. We are ex­porters to the United States in a num­ber of sec­tors: fash­ion, ac­ces­sories, jewels, food , au­to­mo­biles, ma­chin­ery...,” she said.

How­ever, Lu­cia Ta­joli, pro­fes­sor of eco­nomic pol­icy at Polytech­nic in Mi­lan, notes the euro is not “su­per strong” and thinks Ital­ian ex­ports due their growth in re­cent years can take some pres­sure. “They could suf­fer a lit­tle but there shouldn’t be ex­tremely heavy im­pacts,” she told AFP.

For France, the rise of the euro is go­ing to be “felt strongly in some sec­tors such as aero­nau­tics,” said Subran, ad­ding that big en­ter­prises in­volved in ma­jor ex­ports have shown in the past they know how to adapt to a ris­ing euro. For the mo­ment, the strong euro is not both­er­ing Spain as two thirds of its ex­ports are to EU coun­tries. How­ever, growth in ex­ports out­side the bloc-which has in­creased by five per­cent dur­ing the first five months of this year com­pared with the same pe­riod in 2016 — could ul­ti­mately be af­fected.

The euro’s re­bound comes with the eco­nomic re­cov­ery of the eu­ro­zone on track. “The eu­ro­zone is to­day seen by many as a zone of sta­bil­ity,” Philippe Waechter, an economist at Natixis, told AFP. The econ­omy in the 19-coun­try sin­gle cur­rency area grew by 0.6 per­cent in the sec­ond quar­ter, com­pared with 0.5 per­cent in the first three months of the year, the Euro­stat sta­tis­tics agency said this week. Com­pared with the same quar­ter in 2016, eco­nomic out­put in the eu­ro­zone rose by 2.1 per­cent, it added.

“All in all, the eu­ro­zone econ­omy has rounded out the first half of the year in a very healthy state and seems to be set up nicely for con­tin­ued firm growth for the rest of 2017,” said an­a­lyst Bert Colijn of ING. Eu­ro­zone growth as a whole rose twice as fast as in Bri­tain, where gross do­mes­tic prod­uct was up 0.3 per­cent in the last quar­ter.

Then on Thurs­day the Bank of Eng­land cut its UK growth fore­casts with gov­er­nor Mark Car­ney warn­ing that high in­fla­tion trig­gered by a Brexit-fu­elled slump in the pound had hurt con­sumer spend­ing. So for now the strong euro is ex­pected to have lit­tle im­pact on over­all eu­ro­zone growth, said Subran, who es­ti­mated a loss of 0.1 per­cent­age point this year. How­ever if the sin­gle cur­rency con­tin­ues to strengthen the im­pact on growth could reach be­tween 0.3-0.4 per­cent next year. —AFP

Newspapers in English

Newspapers from Kuwait

© PressReader. All rights reserved.