Strong euro worries European firms

By Antonio Rodriguez

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.

Topics: euro , European exporters , European Union , Europe’s economy
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