German exporters wary over currency wars

(Munich) - German exporters are expressing growing anxiety about the appreciation of the euro against the US dollar and the prospect of a currency war.
Germany, the world’s second-largest exporter after China, is on track for 16 per cent growth in foreign trade to €937bn ($1,307bn) this year, mostly spurred bybuoyant demand from emerging markets.

But there are signs that export growth is slipping. Several industrialists told the Financial Times they were worried that export growth could be hit by the falling dollar and the prospect of more quantitative easing in the US.

Anton Börner, president of BGA, the German exporters’ association, said he was afraid of a vicious spiral: “We expect the US to continue its policy of printing money. This will trigger a currency devaluation spiral that will hit Europe the most.”

A senior executive of Volkswagen, the market-leading carmaker in Europe and China, voiced similar concerns. “I am very worried that there could be a devaluation race, which would inevitably bring higher inflation. This would trigger higher interest rates and hit global economic growth,” he said.
European Union member states trade most of their goods and services within the EU, partly shielding them from currency movements. More than 60 per cent of Germany’s exports went to other EU countries in the first half of 2010, data from the federal statistics office show.

But economists said the fall of the dollar against the euro by about 20 per cent to $1.38 since June has already had an impact on Germany’s exports. German exports fell in August for a second consecutive month, a slowdown partly attributed to the strong euro.

Michael Holstein, head of macroeconomics at DZ Bank, estimated that a 10 cent rise of the euro led to a 1.3 per cent drop in German exports.
“The fairly high valuation of the euro against the dollar quickly squeezes profits,” said Thomas Lindner, president of VDMA, the lobby group of Germany’s engineering sector.

Mr Börner forecast slower German export growth next year of about 7 per cent to a record of €1,000bn, dented partly by the currency battles.
But while they were worried about the slowing export growth, most German companies remained fairly relaxed about the future. “This will not be a catastrophe for Germany’s industry,” said Mr Börner.

Many companies are hedged against any rapid moves in the euro and a strong euro is also expected to lead to a fall in import prices for raw materials.
“We are very relaxed about this,” said Hans-Jochen Beilke, head of Ebm-Papst, a producer of industrial fans and electric motors.

He pointed to China, where the southern German engineering company generates 15 per cent of its sales. “We have a mixture of 60 per cent exports and 40 per cent imports to and from China. So this has a balancing effect on any currency movements.”

But Mr Beilke is nonetheless worried that the global currency skirmishes could lead to sharper rounds of protectionism, spurring the need for more local production.

“China is tormenting us already with non-tariff trade barriers. They have further tightened their standards for industrial goods in recent years, so we have to step up our local production,” he said.

Mr Börner pointed to “dangerous” tariffs on Chinese imports being debated in the US. “When such a big country takes such measures, then other countries will and must follow suit,” he said.

Washington ready to increase pressure over exchange rate flexibility

The US will continue to push countries with large trade surpluses to allow exchange rate flexibility to rebalance their economies, a senior Treasury official has said, Alan Beattie writes from Washington.

The currency issue, particularly US pressure for China to allow faster appreciation in the renminbi, is set to dominate a meeting of G20 finance ministers and central bank governors in Korea this week.

Some officials have canvassed the idea of countries trying to target the size of current account surpluses and deficits directly, rather than merely arguing about currencies. But the official said that achieving such a rebalancing would inevitably involve permitting more flexible exchange rates. “From our perspective we believe these issues are fundamentally, inherently linked,” the official said.

The US has complained about “competitive non-appreciation”, with other countries holding down their currencies in order to be able to compete with exports from China.

October 20 2010 20:44
By Daniel Schäfer in Munich
Source: ft.com