How could industrial contraction and rising costs affect the euro?
The euro may face sustained downward pressure due to industrial contraction and rising costs. The combination of industrial contraction and rising production costs across Europe creates a stagflationary shock. High diesel prices are driving up transportation and production costs, leading to higher inflation. Simultaneously, companies are facing crushed margins and production cuts, resulting in economic contraction. This dual pressure of high inflation and economic weakness puts sustained downward pressure on the euro's value.
- Effect
- Strong negative
- How direct
- Brind's reasoning
- When
- Within weeks
- The story
- Gone quiet
How it reaches euro
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Eurozone industrial production contracted 1.1% year-over-year, according to a Eurostat report. Industrial production in Germany is nearly 10% below 2021 levels. This contraction is occurring amid social upheaval and exploding European diesel prices, which are approaching $200 per barrel.
The full event1independent outlet -
The rising costs lead to higher inflation, while the resulting crushed margins force companies to cut production, causing economic contraction. This stagflationary shock—a combination of high inflation and economic weakness—is a factor that puts sustained downward pressure on the value of the euro.
No report states this step directly. Brind drew it from the reporting on each side of it, so treat it as an informed guess.
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currency of most countries in the European Union
Everything about euro
Tap any step to see the evidence behind it.
The facts so far
As reported. Each one links to where it comes from.
- European diesel prices are exploding, approaching $200/barrel.nakedcapitalism.com
- Eurozone industrial production contracted another 1.1% year-over-year.nakedcapitalism.com
- Germany’s industrial production is already almost 10% below 2021 levels.nakedcapitalism.com
- Higher diesel prices mean higher transportation costs, higher production costs and ultimately higher inflation.nakedcapitalism.com
Why it matters
The euro is the primary currency of the Eurozone, and its stability is critical to the economic health of the continent. If the euro experiences sustained downward pressure, it increases the cost of imports and complicates financial planning for businesses and consumers across the bloc. This could exacerbate the existing economic difficulties caused by industrial contraction and high energy costs.
Economically, the situation described is a stagflationary shock, which is historically difficult for central banks to manage. The European Central Bank could fight inflation by raising rates, but the reports note this would further worsen the deindustrialization trend and the sovereign debt crisis, creating a difficult policy dilemma for the Eurozone.
What we don't know yet
- How will the European Central Bank respond to the combination of high inflation and industrial contraction?
- Will companies be able to pass on the rising production costs to consumers without further accelerating inflation?
What would change this answer
Who else could feel it
Other possible ripples from the same event.
- European Central BankLikelyStagflationary shock forces ECB into difficult choice between inflation and deindustrialization
- BrentPossibleEuropean industrial contraction may put pressure on Brent crude prices.
- European CommissionPossibleIndustrial contraction and social upheaval may force European Commission action
Reporting
- nakedcapitalism.comOct 19
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Brind's analysis is written by AI from the reporting linked above and can be wrong. This explainer is a possibility worth considering, not a forecast: steps marked as Brind's reasoning are not stated in the reporting. It is not investment advice; do your own research.