Companies confronted by rising dollar and interest rates

After facing the health crisis linked to the Covid-19 pandemic, followed by supply difficulties, shortages, inflation and the energy crisis, companies now have to deal with two additional constraints: a strong dollar and ever-rising interest rates.

Rising dollar and falling euro

The euro is at its lowest level against the dollar since 2002, reaching parity with the greenback on July 13, 2022.

Several factors explain this weakening of the euro: supply difficulties linked to the health crisis, the war in Ukraine, soaring energy prices and the risk of gas shortages have slowed growth in the euro zone and contributed to weakening the single currency.

This situation benefits French companies exporting goods and services to the United States, particularly in the luxury goods, aeronautics, wine and agri-food sectors.

L'Oréal should see its sales increase by 8.1% in 2022, and Hermès has benefited strongly from the currency effect since the beginning of the year, with sales up 30% over 9 months.

On the other hand, imports of goods and raw materials are also becoming more expensive, and many French companies are feeling the full brunt of the dollar's rise and the euro's fall, without being able to raise their selling prices to maintain their margins.

Rising rates

At the same time, companies have to contend with rising interest rates. France's borrowing rate has reached its highest level in 10 years: from just 0.2% a year ago, it now stands at over 3%, while the US government borrowing rate is over 4.2%.

For companies, borrowing is now around 2 times more expensive than last year, due to rising interest rates. Last year, however, rates were at historically low levels, so many companies took advantage of the opportunity to borrow at low cost before rates rose again.

On the other hand, the most vulnerable companies, forced to refinance their debt during the year, will be fully impacted by the rise in borrowing rates. However, two factors are helping to make French companies more secure: government-guaranteed loans, whose repayment can be spread over 10 years in the event of major cash-flow problems, and the small proportion of variable-rate debt (only 38% of corporate debt).

However, against a backdrop of successive crises, the rise in interest rates and the dollar risks further destabilizing the most vulnerable companies.