Weak euro is a boost for European exports

Lithuanian students' photo of what the euro means to them
A weaker euro has boosted European Union

The news of the European Union’s severely debt-laden countries and €1 trillion bailout has hampered the euro. In the last six months, the currency has declined 17 percent against the U.S. dollar.

But look at the euro’s silver lining. The depreciating euro has benefited France and Euro zone exports. French and European products are now more competitive in global markets.

France’s gross domestic product for first-quarter grew 0.1 percent from fourth-quarter 2009. But French exports rose almost 4 percent, compared to 0.4 percent for fourth-quarter 2009 and all industries, from equipment goods to manufactured goods, experienced gains. The Euro zone’s exports rose 7 percent from February 2010 and reported a €4.5 billion trade surplus.

“A weaker currency helps exports,” said Cornelius Luca, president of LGR, a financial trading company. “But it also doesn’t mean a short-term decrease will make much of a difference.”

Even Vallourec SA [[VK]], a French steel tubing manufacturing company for the oil and gas industries, stands to benefit, despite reporting significant losses for first-quarter 2010.

Chairman Philippe Crouzet foresees continued pressure on the company’s numbers in the first half of the year before picking up in the second half. “We see a clear higher activity in the U.S. of course for oil and gas applications and in non-energy markets, which as you may remember, were the first markets to fall down at the end of 2007, in fact, 2008, beginning of 2008,” he said during the company’s earnings call.

In February, Vallourec announced it was investing $650 million to build a new rolling mill plant in Youngstown, Ohio, in order to meet U.S. demand for its oil and gas refining.

Luca said the euro’s recent five-week slide is not a concern. Since the euro’s 1999 inception, at $1.17, the currency hit an all-time low of 82 cents on Oct. 25, 2000 and peaked at $1.59 on July 15, 2008.

As of 1 p.m. CST, the euro rebounded 1.21 percent from yesterday’s close and was trading at $1.23.

“I think the market has been overboard,” said Luca, who also mentioned the euro has been oversold. “There’s been dramatic, dramatic events and trading got a bit out of hand. It’s bad but it’s not the end of the world.”

Leave a Reply