Growing confidence in the eurozone: what are the implications for international money transfer?

The European Commission has announced that executive and consumer confidence in the eurozone has risen to its highest level since 2011. As confidence in Europe grows, how could this shift affect international money transfer?

The good news

The eurozone’s short-term health is looking decent at the moment. Year-on-year sales are up, employment is rising, and concerns about Greece leaving the euro have faded. Moreover, Quantative Easing (QE) helped the bloc escape deflation last year.

Misplaced optimism?

This increase in confidence is a somewhat unexpected twist in a turbulent tale. Despite the ECB's stimulus efforts, inflation has been low and slow throughout the region, coming in at just 0.2% in December. In fact, not only did the eurozone fall short of its 2% inflation goal in 2015, it also underperformed against forecasters' seemingly modest Gross Domestic Product (GDP) growth expectations of 0.4%.

Given that real GDP increases are linked to currency appreciation and GDP decreases to depreciation, the ECB had hoped for 0.4% growth to weaken the single currency against its international competitors, thereby making things easier for eurozone-based exporters and boosting the bloc’s economy.

A murky future

The ECB has stated that it’s prepared to carry out another round of QE if necessary, though many economists doubt that balance sheets can continue to expand indefinitely. If the bank does go ahead with further easing, it may find that sluggish global growth offsets any benefits stemming from a weakened single currency.

On the other hand, if the ECB doesn’t intervene and deflation causes the euro to strengthen markedly against other currencies, European export businesses will certainly suffer, putting a further hurdle in the way of economic recovery.

If your business is eurozone-based and has a supply chain that stretches outside the bloc, it’s time to keep a close eye on the financial news. If the euro’s exchange rate with your suppliers’ currency looks to be edging up and the ECB shows no signs of intervening, you can cut your losses by asking one of our FX brokers to draw up a ‘forward contract’ that’ll fix the rate well into the future.

If, however, the single currency falls prey to deflation and your firm is based in the UK or America, 2016 may be a good year to consider marketing to businesses inside the bloc. A higher exchange rate and a stronger euro will mean that more Eurozone inhabitants will be able to afford your products or services – you can use our handy currency comparison tool to keep track of how things are progressing.

Comparison tool

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Etta and Pierre Deschamps, Documentree Films

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