Euro's Rise, Improving Corporate Results and Upbeat Production Figures Push Zloty to Four-year High Against Dollar.

(From Polish News Bulletin)

The zloty rose to its four-year high against the dollar on the foreign exchange market on Friday, trading at a peak ZL3.6778, as the euro climbed to its highest level against the greenback since its debut in January 1999. The zloty traded at ZL4.3332 to the euro.

The euro's rise to the dollar ? by 12 percent this year, and over 30 percent since the beginning of 2002 ? has been a result of a number of factors, including higher interest rates in the eurozone than in the US; mounting US public debt; and US pledges that it would not intervene to support the dollar.

While the euro's rise was received calmly by the markets, it has the economists worried. "Significant euro appreciation could reduce chances for a recovery in eurozone growth, even for as long as half a year," believes Paul van den Noord, economist at OECD. First quarter eurozone growth was flat.

A strong euro is in the first place harming eurozone exports, chiefly to the US. EU exporters have voiced fears that a prolonged euro appreciation could threaten eurozone growth which bases to a significant extent on exports. Export of goods and services accounts for some 15 percent of eurozone GDP. OECD estimates that 10-percent euro appreciation means 0.8 percentage points less GDP growth in the eurozone.

For the Polish economy, the effects of a strong euro are seen as predominantly good. A strong euro means, among other things, that exporters to the eurozone get better prices for their products, and that domestic goods become more competitive (at home, because imports are more expensive; in Europe, because there is room for price cuts). It also means, however, that eurozone imports are more expensive, and that companies and consumers servicing euro loans have to pay higher instalments. A cheap dollar, in turn, means lower oil prices, cheaper dollar imports, …