Euro Tumbles To Twenty-Year Low, French Economy Contracts

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Nancy Heslin   Forbes Monaco

Euro Tumbles To Twenty-Year Low, French Economy Contracts

The U.S. dollar is reaching multi-decade highs against a falling euro and British pound.  

The euro’s devaluation, which plunged below parity on Monday to its lowest point in nearly 20 years, is related to a proactive U.S. Federal Reserve trying to curb inflation, as well as an energy crisis in Europe that is not going away anytime soon. Overnight, gas prices in the EU spiked 13% to a new record, having doubled in one month. The current price for gas is 14 times higher than the average of the past decade.

Economists at U.S. bank Citi are suggesting that British consumer price inflation could top 18% if energy prices are not restrained, a level not seen since 1976.

And according to a press release on the S&P Global Market Intelligence website Tuesday, the French economy in August “tipped into a contraction zone for the first time in almost a year and a half.” The composite flash index of global activity, which measures private sector activity, fell in August to 49.8, against 51.7 in July. An index below 50 indicates a contraction in activity, an index above this limit reflecting an expansion.

“August flash PMI data for France suggest the economy has now entered into contraction for the first time in a year and-a-half as a sharp manufacturing downturn more than offset only a marginal increase in service sector activity. High inflation and a waning post-Covid boost to demand has led businesses and consumers to cut back on discretionary spending, causing demand for services to fall for the first time since March 2021. This was accompanied by another steep decline in manufacturing order books as businesses in both sectors commented on weakening underlying demand conditions and growing client hesitancy,” said Joe Hayes, Senior Economist at S&P Global Market Intelligence.

Service activity continued to grow, with an index of 51 in August compared to 53.2 in July, its lowest level in 16 months. But manufacturing output fell for the third consecutive month, falling to 44.4 for the current month, against 44.6 in July, and thus fell to its lowest level since the end of the first confinement which had paralyzed activity. in France when the pandemic broke out 27 months ago.

“European economies look set for a challenging run into year-end and France is no exception,” Hayes commented. “High inflation has squeezed purchasing power among consumers and businesses alike, although we saw further signs to suggest we have passed peak price pressures. Nevertheless, inflation remains elevated and businesses reported more and more clients being deterred from placing orders due to the current price level. The downward trend in the France PMI may well persist now demand for goods and services is falling.”

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Nancy Heslin   Forbes Monaco

Nancy Heslin is an established journalist and lifestyle writer. She has been the Editor-in-Chief of Forbes Monaco magazine (bimonthly in English) , since the magazine's 2nd issue . Launched in November 2018, Forbes Monaco is part of the Forbes family, with its 7 million readers and 71 million monthly website visitors worldwide.