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German firms increasingly worried about weak euro

Germany’s DIHK Chambers of Commerce said yesterday that while the weak euro would initially boost Europe’s largest economy by enabling exporters to offer their goods abroad for less, firms were increasingly concerned about the exchange rate.

“The strong exchange-rate fluctuations in recent months are making it difficult to develop long-term plans and increasing the cost of the hedging transactions they need to do,” the DIHK said.

Most firms in Germany have to import goods and these have become noticeably more expensive due to the weak euro, it said.

A DIHK survey earlier this year found that almost a fifth of German companies see the weak euro as a business risk, compared with 11% of firms in a poll in October.

While firms now pay around a third less for oil than they did six months ago, the weak euro exchange rate is counteracting some of those gains given that oil is priced in US dollars, the DIHK said.

“A weak exchange rate should not create the impression of greater competitiveness. A weak currency generally goes with a weaker economy,” it said.

“The devaluation of the euro is therefore also a sign that investors have more confidence in other countries’ dynamism, especially in the US.”

The DIHK also said there was a risk of competitive devaluation after several central banks around the world reduced their key interest rates and so stopped their currencies from appreciating more strongly. “That shows that competitive devaluation that seeks to boost your own export industry doesn’t achieve anything because other countries can always follow suit,” it said.

Reuters

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