ECONOMY

European industrialists worry that strong euro hurts recovery

BRUSSELS – The euro’s appreciation on the foreign exchanges poses the most immediate risk to economic recovery in the dozen countries that share the currency, an influential survey showed yesterday. European business group UNICE said its twice-yearly survey of economic prospects showed businesses had revised upward 2004 growth forecasts for the eurozone to 1.9 percent from 1.7 percent and were looking for growth of 2.2 percent in 2005. «The most immediate cause for concern is the possibility of a further appreciation of the euro against the dollar,» it said. «The current volatility in the foreign exchange markets and the rapid appreciation of the euro is seen as one of the main risks to the nascent economic recovery,» it added. The euro’s exchange rate against the dollar was considered too high by all eurozone respondents when they were surveyed in February – a month in which the euro averaged about $1.2670, UNICE said. The survey was compiled from responses from UNICE’s national member federations, such as the Confederation of British Industry, Germany’s BDI, France’s Medef and Italy’s Confindustria. Those surveyed in France said a euro rate above $1.10 would significantly hurt the European economy, while German and Greek ones put the pain threshold at $1.20. Those polled in other eurozone countries put it at $1.30 or higher. Respondents from five of the 12 eurozone countries expected the euro would by August be trading at or above the pain threshold they had cited for the European economy. The persistence of international tensions and the possibility of new terrorist acts were also commonly quoted risks, with the latter being cited even by those who responded before the Madrid bombings of March 11. The euro’s appreciation was seen as having some positive effects, such as offsetting the impact of an increase in oil prices. «If the euro’s appreciation translates into lower inflation prospects, this could provide the ECB (European Central Bank) with some room to maneuver.» A slight majority of those surveyed said monetary policy was appropriate, with opinion finely divided as 46 percent considered it too tight. UNICE said inflation was expected to remain under control and that while it had been more stubborn than expected, it was not a source of concern. Its survey forecast inflation at 1.8 percent this year and next. Also, worries about the risk of deflation had dissipated, it said. A lack of confidence among consumers was seen as one of the reasons for the delay in economic recovery and the slow pace of the pickup. «The recovery is there but it is fragile and largely dependent on external factors; the necessary return of confidence remains elusive,» UNICE said.