Further losses on the euro taking the currency towards parity with the US dollar would, in isolation, be mildly positive for the profitability of European corporates, according to Fitch. But only a minority would see a material gain – including some carmakers and the aerospace industry.
While Fitch’s corporate forecasts do not anticipate a sharp drop for the euro, recent falls for the currency mean it is worth highlighting its view on the exposure of European corporate performance to a weakening single currency. This analysis focuses on the mismatches between the currency mix of corporate issuers’ costs and revenues.
A weakening euro would generally be positive for manufacturers, as they tend to have a larger proportion of euro-denominated costs than revenue. In particular, aerospace and defence companies such as EADS and MTU Aero Engines, would benefit from the industry’s convention of pricing export contracts in US dollars.
In the auto sector, premium manufacturers such as BMW and Volkswagen’s Audi unit would be the main beneficiaries of a falling euro. These companies have retained a large production base in the eurozone, while many of their customers are in Asia and the US. French manufacturers Peugeot and Renault would see a smaller impact because they still sell most of their cars in Europe.
At first glance, some oil majors such as BP would appear to be significantly exposed to euro depreciation, since the firm sells around 40% of its products in the eurozone, while costs in the region are very low. However, euro markets are used to absorbing changes in the US dollar-based oil price and increases would therefore be passed on to customers. The main negative impact from a falling euro for oil companies would therefore be the secondary effect of lower demand stemming from higher oil prices.
This scenario does not factor in the underlying causes of a weak euro – which could include a slowdown in the eurozone economy negating some of the currency effects – but it does give a broad order of magnitude sense of eurozone corporates’ resilience to currency movements.
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