The Long-Term Consequences Of The Weaker Euro

Because of slower profit growth in Europe, the currency momentum is a very welcome gift to corporations across the continent. Despite the fact that recent changes in the currency markets caused higher volatility in earnings, expectations are high for European companies. At least, that is what analysts from Comgest stated.

Beyond 2015, Comgest is expecting short-term profit growth to be positively affected in European companies. It is important to keep in mind that the effects will be different depending on the sector, especially in the long term.

The Weaker Euro

For Europeans, the most remarkable currency move is the decline of the euro versus the dollar by 20 percent, of course. In contrast with what many people have said, this should not be interpreted as empowering for the competitive strength of European companies in the long term, according to Comgest. These kinds of fluctuations are rather normal in their eyes.

Looking at different sectors, analysts only see a few sectors that are not at risk like service and retail, since they generate their costs close to the consumer and run little transaction risk. The same goes for consumer products, according to Comgest.

Stronger Franc

For luxury goods there is concern regarding currencies, although most luxury goods have flexible price points. For 2015 Comgest is expecting a possible positive effect of the currency market on these products, because companies can raise their prices and this often has a nice impact on revenue.

Comgest, moreover, sees transaction risks for research intensive industries like pharma and software, because of mismatches in currencies. There are many companies that have this challenge. Roche, for example, generates part of its costs in the stronger Swiss Franc, but only generates a very small part of its revenue in Switzerland. A stronger Franc is not very good news for Roche, as a consequence.