EUROPE’S single currency, which has been facing continued pressure due to multiple regional factors, sank to its lowest level since September 2003 at $1.13 after the launch of quantitative easing by the European Central Bank last Thursday.

The planned 1.1trn-euro asset purchase programme and an open-ended commitment to print money would bring inflationary pressures in the EU region, leading to further currency depreciation.

Since the start of the fiscal year, the euro has depreciated by 15.4pc, making Pakistan’s commodities bound for Europe more expensive, despite their unchanged dollar-based prices. Furthermore, the expected fall in consumer purchasing power in Europe would affect the demand of exports from Pakistan (and other Asian nations) to the EU.

The textile sector, especially composites, would bear the brunt of this, while food (rice etc) and medical instrument exports to Europe are also going to get hurt. In CY14, Pakistan’s total exports to the EU stood at $7bn, against imports of $4.2bn.

Around 28pc of Pakistan’s total exports go to Europe, as per SBP data. However, based on an analysis of 10 major listed textile composites, euro sales of textile composites could be 25pc of total sales. This would expose these firms to exchange losses and declining margins.

While exchange losses may remain contained due to hedging, volumes and margins may erode in the coming months due to worsening exchange parity.

— Zeeshan Afzal, Taurus Securities

Published in Dawn, Economic & Business, January 26th , 2015

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