"Euro Could Reach 0.75 Dollars"... Europe Becomes a 'Powder Keg' for Economic Recession

Euro Falls Below Historic Low Amid Fears
Energy Crisis, Capital Flight, and China's Economic Slowdown Combine
Rising Energy Import Burden Raises Concerns Over Economic Downturn Cycle

[Image source=AP Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] As the energy crisis intensifies, the euro, which has already fallen to its lowest level in 20 years, is expected to plunge below its all-time lows, spreading concerns about a recession originating from Europe. If the burden of energy imports increases further due to the decline in the euro's value, there is a possibility that the European economy could fall into a prolonged vicious cycle.

On the 23rd (local time), Luis Costa, Head of Foreign Exchange Strategy at Citibank, appeared on CNBC and said, "Considering the macroeconomic situation, the euro will fall further," adding, "It could drop to between $0.80 and $0.75 per euro in the coming months."

The euro, which has already fallen below parity with the US dollar for the first time in 20 years, could drop below its all-time low. The euro's all-time low was $0.82 per euro, recorded in October 2000. On that day, the euro fell intraday to $0.9901 before slightly rebounding to $0.997, but it failed to recover parity.

Costa explained that the reason for the further expected plunge in the euro is the complex crisis facing the European economy. He stated, "The energy crisis caused by Russia's gas supply pressure and the resulting inflation, as well as the dollar's strength due to interest rate differentials with the US, will further weaken the euro. We must also consider that China's recent rate cuts and economic slowdown could hit the European economy, which heavily depends on trade with China, on a much larger scale."

In particular, as Germany, Europe's largest economy, is expected to enter a recession due to the energy crisis, capital flight from European financial markets and the decline of the euro are anticipated to accelerate. According to CNN, Germany, which depended on Russian natural gas for 55% of its supply, plans to implement a gas rationing system for major manufacturers starting this winter amid ongoing threats of Russian gas supply cuts. If rationing is implemented, productivity is expected to sharply decline among major manufacturers, especially steel and chemical companies that have high gas demand.

Robin Brooks, Chief Economist at the Institute of International Finance (IIF), tweeted, "German manufacturing is losing competitiveness as it loses access to cheap Russian energy, which has been the foundation of its growth. The euro will find it difficult to recover parity with the dollar, and a recession across Europe is imminent."

If the euro continues to plunge amid recession concerns, the burden of energy imports will increase accordingly, risking a vicious cycle. The UK’s BBC pointed out, "Since the 1974 Petro-dollar agreement between the US and Saudi Arabia, most international oil and natural gas markets have been settled only in dollars. If the currency value falls sharply against the dollar, energy import costs will continue to rise."

Concerns have also been raised that droughts hitting across Europe will make factory operations difficult, significantly impacting the manufacturing downturn. Carsten Brzeski, Macro Analyst at ING Bank, warned in an interview with the UK’s Guardian, "Along with the energy crisis, severe drought this year has greatly reduced coal and water transport on the Rhine River, and combined with cooling water shortages at various manufacturing plants, factory operations are becoming difficult."

This content was produced with the assistance of AI translation services.