9 Dec 2014
Weaker euro good for both Germany and Eurozone – ING
FXStreet (Barcelona) - The ING Team notes that a weaker euro is probably the best thing that could happen for both Germany and Eurozone, observing that a 5% depreciated euro could add around 0.3% to Eurozone’s growth.
Key Quotes
“The exchange rate channel remains in our view the strongest argument for the ECB’s QE efforts. Indeed, going back to bigger macro-economic simulations indicates that ECB president Draghi was right in pointing to the negative impact on inflation from lower oil prices, rather than any positive effects for growth.”
“As a rule of thumb, a depreciation of the (trade-weighted) euro exchange rate by only 5% could add some 0.3%-points to Eurozone GDP growth. To get the same impact from oil, prices would need to fall by at least 50%.”
“At the current juncture, the weakening of the trade-weighted exchange rate has been less accentuated than the weakening vis-à-vis the US dollar. If it stayed at its current levels throughout 2015, the nominal effective exchange rate would only be 2.5% below its 2014 average. This seems to explain why ECB president Draghi prefers to use falling oil prices as a means to get QE, rather than hoping for the direct healing impact from oil.”
“Looking ahead, even if it might hinder new structural reform efforts, a weaker euro is probably the best thing that could happen to both Germany and the Eurozone.”
Key Quotes
“The exchange rate channel remains in our view the strongest argument for the ECB’s QE efforts. Indeed, going back to bigger macro-economic simulations indicates that ECB president Draghi was right in pointing to the negative impact on inflation from lower oil prices, rather than any positive effects for growth.”
“As a rule of thumb, a depreciation of the (trade-weighted) euro exchange rate by only 5% could add some 0.3%-points to Eurozone GDP growth. To get the same impact from oil, prices would need to fall by at least 50%.”
“At the current juncture, the weakening of the trade-weighted exchange rate has been less accentuated than the weakening vis-à-vis the US dollar. If it stayed at its current levels throughout 2015, the nominal effective exchange rate would only be 2.5% below its 2014 average. This seems to explain why ECB president Draghi prefers to use falling oil prices as a means to get QE, rather than hoping for the direct healing impact from oil.”
“Looking ahead, even if it might hinder new structural reform efforts, a weaker euro is probably the best thing that could happen to both Germany and the Eurozone.”