A faltering US dollar, that had touched its all time low compared with Euro last Friday, has favorably affected US exports by reducing its trade deficit but a strong Euro is not good news for European exporters with exports to the countries trading in dollar terms becoming costlier in terms of the depreciating US dollar. While the fear of decline in the value of exports is looming but for the European traders, it is not the appreciating Euro but it is global inflation that they fear might seize the competitiveness of their products.

While an appreciating currency is not good news for the exports of a country but it reduces the cost of production of domestic industries using imported goods as inputs. The lower cost of production would help in recouping any loss in profit from the rise in money-value of the exports. The industries worldwide are reeling under global rise in oil prices. However, oil imports in Europe that are traded in dollar have become cheaper in terms of Euro. Despite an 8% drop in exports from the euro-zone to the USA in the last three months of 2007 compared with the same period in 2006, Europe recorded a healthy growth in industrial output. Rise in exports from Germany has brought the country close to China as the world’s leading exporter. With expansion of the global merchandise market, Europe no longer depends exclusively on the USA for its exports. The sophisticated equipment and machineries produced in the European factories have a huge demand in the Middle East, Russia and other developing countries. The rise in oil prices and the rising economic activities in the emerging economies have kept a steady demand for European exports.

Despite of whatever silver lining the European traders are discerning from a rising Euro but the EU leaders in the recently concluded summit in Brussels have expressed their concern over an excessive volatile and disorderly movement in exchange rate and its ill effect on economic growth. France and Italy are particularly concerned about the continuous appreciation of the Euro.

Source: IHT199802