Date: 2016-08-12

The Positive Impacts of a Weaker Euro

Jacob Simon

As the Eurozone progressively works on pulling out of financial distress, the economy is getting a much needed boost from its relatively weak euro. The euro has fallen 19 percent against the U.S. dollar ($1.11/euro) and 12.5 percent against the U.K. Sterling (0.73/euro).The weak euro is a distinctive element for providing a big boost for exporters. Moody’s, z credit rating agency, explains the drop in the euro as “positive for companies that have the majority of their cost bases in the euro area with significant sales to regions outside it”.

The positive aspect of a cheaper euro gives European companies an advantage in price competitiveness of exports. In 2014, exports accounted for roughly 25% of Europe’s Gross Domestic Product (GDP). To add to Moody’s positive outlook, Goldman Sach’s group concluded that 54 percent of aggregate corporate revenues come from out of the European area.

Specifically, the automotive and tourist industries are reaping the rewards. The big three major European auto manufacturers BMW, Daimler and Volkswagen are the biggest beneficiaries of the weak euro due to the fact a large share of their European production is exported to markets such as the United States. In 2013, the European Automobile Manufacturers Association conducted a research that found European manufacturers exporting 123 billion euros worth of vehicles.

Another industry feeling the boost is tourism. A cheaper euro attracts more foreigners and as a result, Europe has become a popular vacation spot recently. These tourists are important because they also engage in shopping, which leads to helping the retail industry. Data supports this thesis as retail sales haven jumped 1.1% from January.

Even though a weak euro is good for some industries and not helpful for the majority of other struggling industries, these boosts help provide momentum for more positive forecasts for the Eurozone.

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