Weak Euro Benefits Germany According to IMF

While the euro has increased in value over the last year, news of financial troubles for Greece have led to heavy fluctuation in its value over the last six months. The trend toward a weaker euro may be bad news for other European nations, but may actually boost the German economy.

According to the International Monetary Fund (IMF), a weak euro and lower energy prices are actually supporting the German economy. This support, in turn, has given Germany the opportunity to bolster medium-term growth and reduce external imbalances, said the IMF.

While the euro has increased in value over the last year, news of financial troubles for Greece have led to heavy fluctuation in its value over the last six months. The trend toward a weaker euro may be bad news for other European nations, but may actually boost the German economy.

According to the International Monetary Fund (IMF), a weak euro and lower energy prices are actually supporting the German economy. This support, in turn, has given Germany the opportunity to bolster medium-term growth and reduce external imbalances, said the IMF.

“The ongoing upturn [in Germany] is benefiting from the euro depreciation and lower energy prices, and is underpinned by a healthy fiscal position and sound corporate and household balance sheets,” said the IMF’s report on Germany, released Wednesday, July 15.

According to a recent report by Reuters, German exports rose at their fastest pace in May.  Moreover, the trade surplus hit a record high at 22.8 billion euros. On the other hand, the euro has been on a rollercoaster since January 2015. While it has experienced an overall trend toward growth in the last year, including a 5.49 percent overall growth vis-a-vis the US dollar over the last six months, since January growth has been very uncertain. The Euro crested in value in March, dropping steeply in May and again in June amid concerns about a possible Greek debt default. It has been on a gradual increase again since Mid-June but growth remains slow compared with the last six months of 2014.

Although the IMF’s report on Germany painted a largely positive image of an economy well positioned to take advantage of the weakened euro, it also held a few cautionary notes. For example, the IMF cautioned that there was a need to closely monitor the German housing market and life insurance sectors. Per the report, these are areas “where persistently low interest rates may give rise to financial vulnerabilities.”

Although the German government had predicted growth of 1.8 percent for this year, the IMF report confirmed its own prior growth forecast for Europe’s largest economy of just 1.6 percent this year and 1.7 percent next year. No word yet on whether Germany will adjust its own forecasts based on the IMF report or more recent indicators.