Home' Trinidad and Tobago Guardian : April 19th 2015 Contents SBG10 FINANCE
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt APRIL 19 • 2015
The US dollar hasn t been
on a roll like this since
Ronald Reagan sat in the
White House and
Raiders of the Lost Ark
ruled the box office.
Since June 30, the greenback is up 28 per
cent against the euro, 18 per cent against the
Japanese yen and 40 per cent against the
Brazilian real. Not since 1981 has the dollar
been so strong.
Some US companies and investors wish it
would take a breather. Delta Air Lines said
Wednesday that the strong dollar is hurting
ticket sales in some foreign markets and
announced plans to pull back international
service, primarily in Japan, Brazil, India, Africa
and the Middle East.
Johnson & Johnson on Tuesday blamed
the dollar, in part, for dragging its first-quarter
earnings down nearly nine per cent.
Meanwhile, the International Monetary
Fund downgraded the outlook for US eco-
nomic growth this year and next, citing the
strong dollar s damage to American exports.
The dollar is rising largely because the US
economy is outperforming most other devel-
oped economies and because US interest rates
are higher than those in Europe and Japan.
And in the emerging markets of Asia and
Latin America, it is threatening financial sta-
Here s a look at the dollar s far-flung impact
The rising dollar hurts US companies that
do business abroad in two ways: It makes
their products more expensive---and therefore
less competitive---in foreign markets. And it
means that the revenue US companies collect in euros
or yen is worth fewer dollars when they bring the money
J&J, for instance, said unfavorable exchange rates
reduced the value of overseas sales by 13 per cent in
the first quarter.
Overall, the outlook for first-quarter corporate earnings
has steadily deteriorated as the dollar climbed. At the
end of last year, analysts were expecting Standard &
Poor s 500 companies to register a four per cent increase
in earnings for the January-March period. By March
31, they were bracing for a five per cent drop, according
to FactSet and PNC Financial Services Group.
Earnings are expected to drop 12 per cent for com-
panies that get more than half their revenue outside
the United States; the rest are expected to register flat
Weighed down by a strong dollar, US exports fell
three per cent last year and were down another one
per cent the first two months of this year compared
to January-February 2014. A drop in exports reduces
US economic growth.
Citing the dollar s impact, the IMF on Tuesday down-
graded the outlook for the US economy. The IMF now
expects economic growth of 3.1 per cent both this year
and next. That s solid---and an improvement on 2014 s
2.4 per cent expansion---but it s down from the IMF s
January forecast of 3.6 per cent growth in 2015 and 3.3
per cent growth in 2016.
Meanwhile, Japan and Europe are poised to benefit
from the dollar s might.
The IMF predicts the Japanese economy will grow
one per cent this year versus an earlier forecast of 0.6
per cent. It also upgraded the forecast for the 19 countries
that use the euro currency to 1.5 per cent growth this
year (up from a January forecast of 1.2 per cent).
In the emerging market countries of Asia and Latin
America, the stronger dollar cuts two ways. Yes, it gives
exporters a lift, but it also poses a threat to financial
Enticed by low interest rates, emerging market coun-
tries borrowed heavily in US dollars over the past decade.
From 2005 to 2015, dollar-denominated debt---mostly
corporate bonds and loans---shot up from US$262 billion
to US$837 billion in the emerging markets of Asia and
from US$586 billion to US$963 billion in Latin America,
according to the Institute of International Finance.
As the dollar rises, it takes more local currency to
generate enough dollars to meet loan payments. Emerging
market corporate borrowers could get squeezed. The
pain could spread if those companies suddenly withdrew
deposits from local banks to meet their US dollar pay-
ments, or if the investors who own the emerging market
bonds get rattled and sell them in a panic.
In a report Wednesday, the IMF warned that "financial
risks have increased in many emerging markets" and
said a stronger dollar and weaker local currencies create
"balance sheet strains for indebted emerging market
firms" and for governments.
The strong dollar makes European vacations cheaper
for American tourists. Booking.com estimates that the
average price for a four-star hotel room in Paris, Rome,
Barcelona, Amsterdam and Berlin is down 21 per cent
from March 2014 because of the dollar s rise against
the euro. The company calculates that an American
could spend 14 days in Barcelona for the price of seven
days in Palm Springs, California.
Lyssandros Tsilidis, president of the Hellenic Asso-
ciation of Travel and Tourist Agents, said Greece has
seen a 15 per cent to 20 per cent increase in reservations
from the US---Europe s biggest long-haul market---
compared to the same time last year. Spain saw a 12
per cent increase in January and almost 19 per cent in
4 ways a surging dollar rattles world economies
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