Weak Euro May Not Help All Exporting Euro Zone Companies, Fitch Report Says

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Researched by Industrial Info Resources (Sugar Land, Texas)--The impact of weakness in the euro on the Euro zone companies, while positive for profitability on average, would only be a material benefit to a minority of companies. According to a report from Fitch Ratings, aerospace/defense companies like European Aeronautic Defense & Space Company (Toulouse, France) or car manufacturer Daimler AG (Stuttgart, Germany) will benefit from low euro rates.

Beyond that, the impact of a falling euro to the energy sector is more mixed. "Gas-based electricity generation is vulnerable to the cost of imported gas," the report said. "As the euro depreciated, companies using lignite, nuclear and other fuels, such as Electricite de France (Paris, France), could benefit to the detriment of generators that rely heavily on imported gas if priced in dollars."

Long-term gas import contracts tend to be denominated in dollars as well as in euros. However, the bigger concern about long-term gas contracts is that the gas price in the contracts is largely linked with crude and heating oil, while spot prices for gas are below spot prices for oil.

The report said that non-food retailers are expected to see little impact, while clothing retailers and others that mostly buy from outside the Euro zone could see pressure on their profits because most contracts are in dollars. "Any significant benefit would only come from a sustained fall in the euro, as manufacturers make extensive use of currency hedges--in some cases lasting as long as three years," the report said.

On Thursday, German Chancellor Angela Merkel said in that her country is committed to doing what it can to maintain the euro. In an official visit to Canada's capital city of Ottawa, Chancellor Merkel said that time is running out to resolve the crisis that emerged in Greece in late 2009, even as European leaders make progress in overcoming the turmoil. "The ECB is completely in line with what we've said all along," Merkel told reporters at a joint press conference with Canadian Prime Minister Stephen Harper. The 17-nation euro zone's shared currency rose 0.5% to $1.2356 in New York closing.

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