Business activity in Germany falls in August to June 2020 lows and the euro sinks below the dollar

Business activity in Germany falls in August to the low of June 2020, at the time of leaving the Great Confinement, according to the composite PMI index, which includes the industrial and services sectors, and which has been in contraction territory since July due to the blow of inflation and the risk of a definitive cut of the gas imported from Russia.

The Bank of Spain rules out a recession "in the immediate horizon"

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The indicator calculated by S&P Global advances a recession in the economic locomotive of the eurozone with surveys conducted between the 12th and the 19th of this month. Below 50 points indicates a drop in business activity. And this same reading came out this Tuesday in France, also in August.

"The data paints a bleak picture of the German economy, showing a deepening drop in business activity," acknowledges Phil Smith, associate chief economic officer at S&P Global Market Intelligence.

Coinciding with this recession warning, the euro sinks to its low of 2002 when it crosses the dollar, below par, that is, at the 1:1 exchange rate. As of February 7, just a couple of weeks before the start of the Russian invasion of Ukraine, the common currency was exchanged for $1.15. It is now worth less than the US currency. Something unprecedented in 20 years.

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In gross, if bank commissions or the evolution of prices in this period are not taken into account, the citizens, companies and states of the eurozone have become more expensive for the goods and services they buy in dollars, as is the case of oil , about 15%. How much the euro has depreciated.

The fall of the euro is even greater from the 1.23 dollars at which it was exchanged at the beginning of 2021, of almost 20%. It has lost a fifth of its measured value against the greenback.

The consequences of this depreciation are numerous, some positive and others negative. It adds to economic growth in the sense that the large economies of the eurozone, such as Germany or France, are purely exporters (they sell more abroad than they buy), and their goods and services become more competitive, as they become cheaper due to the fall in the currency. without having to lower wages (or not upload them) or reduce costs to be able to offer the same at a lower price (by the way, an impossible task in these times abrasive inflation).

However, it also remains, and much in a crisis precisely of price and energy increases, by making what is imported more expensive, which is especially crucial for countries like Spain, whose largest item of everything it acquires in dollars is oil. . But it's not just crude. The depreciation of the own currency supposes an extra inflation in general because it raises the costs of the industry, as occurs with the majority of raw materials, which are traded in dollars (also gas, with which electricity is generated, for which the Government has put a cap on our country together with Portugal), and ends up moving at all prices, already out of control.