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The "Disappointing" Impact Of Euro Devaluation On European GDP
The divergent prospects for growth, interest rates and monetary policies between the euro zone and the United States has led to a completely normal depreciation of the euro against the dollar, despite this depreciation being limited by the euro zone’s external surplus. Most observers are exuberant about this depreciation of the euro, but Natixis asks, faced with imports that the euro zone cannot do without (commodities, components manufactured outside the euro zone due to the segmentation of production processes), is it certain that it has a positive effect on euro-zone growth? Given the sensitivity of the euro zone's foreign trade (in volume terms and in terms of prices) to the euro's exchange rate, and at the historical link between the relative growth of the euro zone and the euro’s exchange rate, Natixis (devastatingly for the recovery-enthusiasts) find that the effect of a depreciation of the euro on euro-zone growth is very minor at best and, at worst, zero.
Normal depreciation of the euro
The outlook for growth in the euro zone is much less bright than in the United States (Chart 1, Table 1). This has led to prospects for much higher interest rates – both short- and long-term – in the United States than in the euro zone (Charts 2A and B and 3A, B and C).
Despite the euro zone’s external surplus (Chart 4A), linked to the weakness of its domestic demand (Chart 4B), this outlook for a more restrictive monetary policy in the United States points to a gradual depreciation of the euro (Charts 5A and B), curbed by the surplus in the euro zone’s current-account balance and by the role of the euro as an international reserve currency sought by central banks (Chart 6), which results in purchases of euro-denominated bonds by non-residents.
Most analysts and politicians are pleased about this prospect of a depreciation of the euro. But is it certain that a depreciation of the euro leads to more growth in the euro zone?
Euro exchange rate and euro-zone growth
So we are trying to determine whether a weaker euro leads to stronger growth in the euro zone. The doubt stems from imports that the euro zone cannot do without:
- Commodities (Chart 7A), which represent 6 percentage points of GDP;
- Components imported from the rest of the world due to the international segmentation of value chains (Chart 7B).
We will use two approaches:
- Estimated elasticities of foreign trade to the exchange rate;
- The observed historical relationship between the relative growth of the euro zone and the euro’s exchange rate.
1. Elasticity of foreign trade to the exchange rate
We estimate econometrically:
- The elasticity of the euro zone’s exports in volume terms to the euro’s real trade-weighted exchange rate (Chart 8A);
- The elasticity of the price of euro-zone exports to the euro’s nominal trade-weighted exchange rate (Chart 8B);
- The elasticity of the euro zone’s imports in volume terms to the euro’s real trade-weighted exchange rate (Chart 8C);
- The elasticity of the price of euro-zone imports to the euro’s nominal trade-weighted exchange rate (Chart 8D);
We obtain:
- Elasticity of exports in volume terms to the real exchange rate (an appreciation is a rise in the exchange rate): -0.15;
- Elasticity of the price of exports to the nominal exchange rate: -0.27;
- Elasticity of imports in volume terms to the real exchange rate: +0.05;
- Elasticity of the price of imports to the nominal exchange rate: -0.36.
* * *
A 10% depreciation of the euro:
- Increases euro-zone exports by 4.2% (given the increase in their relative price);
- Increases euro-zone imports by 3.1% (given their relative price);
- Therefore increases the euro zone’s level of GDP by only 0.2 percentage point.
* * *
2. Historical relationship between the relative growth of the euro zone and the euro’s exchange rate
We look at the link between growth in the euro zone relative to the United States and to the world (Chart 9A) and the euro’s exchange rate. Chart 9B shows that growth in the euro zone relative to the United States was high in 2001 (with a weak euro) but also in 2006-2007 (with a strong euro), and then declined while the euro depreciated. Chart 9C shows that growth in the euro zone relative to the world fell from 2001 to 2003 (with a weak euro) and has since been stable. We see no link between the relative growth of the euro zone and the euro’s exchange rate.
Conclusion: Should we be thrilled about the euro’s depreciation?
The divergent prospects for growth and interest rates between the United States and the euro zone explain the euro’s depreciation despite the euro zone’s external surplus. Is the euro’s depreciation good news if we take into account the weight of the euro zone’s necessary imports? First we looked at the elasticities of euro-zone export and import volumes and prices to the exchange rate. We saw a slightly positive effect of the euro’s depreciation on real GDP in the euro zone. Next we looked at the link between euro-zone growth relative to the United States and the world and the euro’s exchange rate. It appears no such link exists.
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OCAM well:
In a few months when the break Economy, Israel will shit in Russia, perhaps China.
This thing will not go blank, the answer will be insane.
In two years you will say: Gee, that motherfucker Brazilian was pretty sure!
Kkkkkkkkkkkkkkkkkkkkk!
Not cool man,I had to deal with the purple elephants agian last night.......
Sneaky bastards....I think their getting in through the porch.
Remeber dont feed the purple elephants-They will follow you home!
Wow that was boring.....buy or sell damn it?!
Having lived over there abouts Europe (UK at the time) in the 60's when every country was doing the round robin devaluations, i can from hard experience tell you all that while it is politically very palatable (Stimulate exports, yadda yadda, etc, ad hoc vootie) all it ever does is raise import prices giving rise to domestic producers raising prices... ergo Inflation.
Nothing fuck all else.
Then when the inflation comes the pols blame the shit on somebody else, install wage and price controls, etc......
Because idiotic academics and people who work in finance think that at the moment FX rate is manipulated higher or lower by computers, then factories will instantly wind up or down the real output.
They don't even know whether those factories exist anyway, they only assume everything exists and supply of goods is infinite.
Yep, EURUSD is a little down for just a few weeks (over the summer holiday season) and some morons pretent this has to have an impact on the Euro economy. Stupid fuckers.
They architects of this aren't idiots they are lying criminals.
Underneath them are some devious b*stards and some useful idiots - the only kind of people they will pay to play, as it were.
If you don't play along with the Money Master, the Money Master doesn't pay you.
Here's Krugman threatening Lietaer to never, ever, ever even discuss reforming debt based money...
Bernard Lietaer, The Paradigm of Money
https://www.youtube.com/watch?v=bFoBUv-IiRw
If the criminals at the top were idiots, they'd be in jail for their crimes, they wouldn't be TBTF&Jail, they would get the taxing authority taxing their $100s of billions of drug money laundering ala Al Capone (it was a Treasury guy that took him down!), etc...
They are robbing you and if you KNEW that, you'd be much more upset than if you simply think they are idiots who don't know better.
"Pretend inferiority' encourage their arrogance."
~Sun Tzu, Art of War
Now, apply that age old principle to today.
All fiat is based on nothing.
It's a huge game played by bankers with no basis in reality, other than the fact that the banksters own governments and governments have large numbers of hired thugs and lots of cages to be used to coerce the average guy into taking part.
Simple really.
Fiat runs on faith and people are running out of faith in the EU. the question is what will Germany do? If they start backing off the system will go full retard very fast.
EUbola
So first and foremost "Europe" (if there is such a thing...and there is not) is a tariff union. There exists in Europe...as with Russia...overwhelmingly an internal market...and indeed it is quite illiberal and indeed this illiberalism is quite fixed.
This certainly has made the overlay of a "currency union" (which can and in fact does trade quite freely outside what is basically a Greater Germany) a rather odd thing.
A "reserve currency" on a par with the dollar? Odd indeed.
The USA probably had the informational advantage in 2008 because Greenspan was knowingly, willfully and blinded by hubris and inquenchable personal greed...going to blow up the world ala a "Financial Hitler." Only the. French in the form of Full Retard Trichet would have welcomed such a turn of events "and the rest as they say is history."
The only one even more overjoyed at Europe's Great Plunging it would seem was no less than President Putin. Talk about Madmen in Heavan.
I say again "you cannot build out the US Navy more quickly and substantially enough." Is it for lack of sailors, soldiers and Marines?
I mean seriously...epidemics of stupidity are abounding here...but none greater than the failure to commit to the epic nature of what is going on.
It is quite ironic that in the end everything devolves down to another day of stock jobbing.
Long Clorox.
BTFD planet peon.
>>So first and foremost "Europe" (if there is such a thing...and there is not) is a tariff union.<<
Wrong.
First, second, and third, "Europe" is a Debt Money Monopoly financed union.
What is that "growth" i read about in these articles ?
Goitre.
And money supply ... lots and lots of zeros to the left of the decimal place.
Don't buy yer ass shit else.
To wit:
In the 50s when I was a kid, a silver quarter boughtcha a gallon of gas.
Today the melt vale of a silver quarter buys you what?
Ta dah!
A gallon of gas!
Meaning all of the price inflation has been by virtue of printing a whole buncha fiat nothings.
Real money still buys the same
Further .... means some of that peak oil, it's all gone shit ain't real as some imagine.
In real terms, it's no more costly than before.
Think about that you global Al Goreists and Egoists
PMs hammered at the open. Typical.
Typical? "We haven't had that spirit here since...1945
Prostitutes never devalue their currency . They might charge less , but they know that devaluing their currency (body) results lower value in the future .
Devaluing a currency for short-term gain while the real cost is hidden in the future is Keynesianism at its worst .
That whores are better economists bodes ill for the future .
I'd say Paul Krugman was behind those "broken window" United States demand through the end of '15 charts.
It's really funny how tea leaf reading eCONomists create demand out of thin air.
Every now and then a very notable and important event occurs, sometimes it slips by without even being noticed. For months the major world currencies have traded in a narrow range as if held in limbo by some great force. This has allowed people to think we were on sound footing as central banks across the world continued to print and pump out money chasing the "ever elusive growth" that always appears to be just around the corner. Recently some currencies have made multi-year highs or lows depending on the match-up .
Because of weak demand for goods and most of this money flowing into intangible investments inflation has not been a major problem, but the seeds for its future growth have been planted everywhere. John Maynard Keynes said By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.
While there are not many Bond Vigilantes there are a slew of Currency Vigilantes and they are ready to make their presence known. Weakness in the value of the Yen, Pound, and Euro must not go unnoticed. More on why this may be a signal that currency trading is about to get very wild in the article below. Please note, this may also be sending a signal that the whole system is unstable and the stock market is about to drop like a stone.
http://brucewilds.blogspot.com/2014/09/caution-alert-currencies-may-get-wild.html
Th only thing Europe needs now is for Mr Putin to raise gas prices for winter....... and insist on being paid in US$.
Game set and match.
Let the ruble keep falling and use the US$ to pay debts down at record rates and finance Russian corporate expansion.