The depreciation of the euro makes it difficult for export textile companies to do business

Recently, the depreciation of the euro has damaged the profits of my country’s textile and apparel export companies. Nowadays, orders from EU buyers have decreased and corporate profits have been damaged, making it difficult for my country’s textile and apparel export companies to do business.
Recently, the exchange rate of the euro against the renminbi once “broke 7”, reaching the lowest point in the past 13 years. Textile and clothing export companies priced in euros have been greatly affected. EU buyers’ orders have decreased and corporate profits have been damaged, making it difficult for my country’s textile and apparel export companies to do business.
​The order volume has decreased significantly
The depreciation of the euro has had a greater impact on my country’s textile and apparel export companies. “The depreciation of the euro has put great pressure on my country’s foreign trade exports. Europeans’ spending power is decreasing, and orders from EU buyers will be significantly reduced.” said the relevant person in charge of the China Chamber of Commerce for Import and Export of Textiles.
The reporter learned that the euro is the largest currency after the US dollar. In the global monetary system, about 20% of transactions are denominated in euros. The EU is the traditional market for my country’s textile and apparel exports. Customers in EU countries have full recognition of my country’s textile and apparel products. “During settlement, EU customers will ask for payment in euros and make it clear that they will not accept U.S. dollars, let alone RMB, because customers also want to avoid the risk of euro depreciation. In order to do business, companies can only accept the customer’s conditions.” Hangzhou City The person in charge of a textile and clothing export company said that the depreciation of the euro has a great impact on corporate profits, but in order to occupy the EU market, corporate profits have to be sacrificed. “In December last year, our company signed an order of 200,000 euros with a Spanish customer. Due to the recent sharp depreciation of the euro, we are really worried that the goods will still be the same, and the domestic production cost has not dropped at all. But once the payment is received, this business will We will lose tens of thousands of yuan due to the depreciation of the euro,” said the person in charge of Zhejiang Chengxin Weaving Co., Ltd. “The depreciation of the euro against the renminbi is a great test for export companies. We previously signed an order with a Finnish customer settled in euros, and as a result, we lost about 2 million yuan.” A textile and clothing export trading company in Ningbo Manager Mr. Wang sighed.
​The economic downturn caused the euro exchange rate to fall
Industry insiders said that the primary reason for the continuous decline of the euro exchange rate is the European economic downturn. Contrary to the continued recovery of the U.S. economy since last year, which has driven the strengthening of the U.S. dollar, the European economy has not yet emerged from the haze of the European debt crisis. It is understood that the final value of the Eurozone manufacturing PMI (Purchasing Managers Index) in December 2014 was revised down from 50.8 to 50.6. Except for Germany, which remained unchanged, major countries such as France, Italy and Spain were revised down to varying degrees, indicating that the euro The overall manufacturing activity in the district still lacks vitality.
In addition, the inflation rate in the Eurozone has continued to hover at low levels in recent months, well below the 2% target set by the European Central Bank. The initial inflation rate in the Eurozone in December 2014 was -0.2%, which has further increased the market’s expectations for the euro. Concerns about the risk of deflation in the region have intensified.
Wan Jun, an associate researcher at the Institute of World Economics and Politics, Chinese Academy of Social Sciences, said that with the depreciation of the euro, the exports of Chinese companies will be the first to be affected, especially for export companies priced in euros. First of all, this means that companies exporting to Europe face greater cost pressure. The price of Chinese goods will also rise due to the depreciation of the euro, which will make it more difficult for Chinese companies to export to Europe. Secondly, the actual income of enterprises exporting to Europe will be greatly reduced.
​The euro will continue to depreciate
Market analysts pointed out that the euro’s decline is far from over, and at least two major factors will continue to be a drag. One is the monetary policy of the euro zone. Last year, the European Central Bank cut interest rates twice and set the main financing rate below zero. It is difficult for central banks’ euro reserves to maintain the value of their assets. The combination of economic downturn and deflation will make the European Central Bank’s quantitative easing policy imminent and have to be launched; secondly, there is the risk of Greece exiting the Eurozone. If Greece exits the euro zone, it will further undermine market confidence in the euro and may trigger a domino effect.
This series of unfavorable factors has intensified the market’s bearishness on the future trend of the euro exchange rate. Several major international investment banks believe that the euro exchange rate will fall further. Goldman Sachs predicts that the U.S. dollar and the euro will reach parity by the end of next year, that is, 1 euro will only be exchanged for 1 U.S. dollar in the future, or even lower.