Reuters News - Germany holds up Greek bid for euro zone loan extension

(Reuters) - Germany rejected a Greek proposal for a six-month extension to its euro zone loan agreement on Thursday, saying it was "not a substantial solution" because it did not commit Athens to stick to the conditions of its international bailout.

Berlin's stance, describing the carefully worded Greek letter as a "Trojan horse" for shirking commitments, set the scene for tough talks at a crucial meeting of euro zone finance ministers on Friday. Greece's leftist-led government is scrabbling to avoid running out of money within weeks and will face pressure to make further concessions in Brussels.

As the biggest creditor and EU paymaster, Germany has the clout to block a deal and castGreece adrift without a lifeline, potentially pushing it towards the euro zone exit. But some officials in other capitals saw the German response as tactical and forecast agreement by the weekend after more wrangling.

Nonetheless, despite warm words from those who saw the Greek move as a step forward, Athens remained isolated after a meeting of euro zone officials to prepare Friday's talks, sources close to the negotiations said. All agreed with Germany that Greece must commit more clearly to abiding by its current credit terms.

A Greek official said Prime Minister Alexis Tsipras had a 50-minute telephone call with German Chancellor Angela Merkel on Thursday, believed to be their first substantive exchange since the Athens government was elected on Jan. 25.

"The conversation was held in a positive climate, geared towards finding a mutually beneficial solution for Greece and the euro zone," the official said. A German spokesperson confirmed the call but would not comment on the content.

Tsipras also spoke to French President Francois Hollande, who, according to a Greek official, promised to raise the issue with Merkel when she visits him in Paris on Friday.

Earlier, Finance Minister Yanis Varoufakis formally submitted the request after days of backstairs negotiations with the European Commission and the chairman of the Eurogroup of finance ministers of the currency bloc.

While officials in Brussels, Paris and Rome welcomed the effort by a government elected on an anti-austerity platform to find a workable formula, German officials said it was full of loopholes with no commitment to respect the bailout terms.

Finance Minister Wolfgang Schaeuble's spokesman said the Greek proposal did not meet the criteria agreed by the Eurogroup and "goes in the direction of a bridge financing without fulfilling the demands of the programme".

Economy Minister Sigmar Gabriel said what mattered was what economic reforms Greecewas prepared to make, adding: "The letter can only be the start of negotiations."

The objections from Berlin drew a tart response from Athens, which questioned whetherGermany spoke for the other euro zone finance ministers, whose aides were already in Brussels looking at the options during a meeting on Thursday afternoon.

"Tomorrow's Eurogroup has only two options: either to accept or reject the Greek request," a Greek official said. "It will then be clear who wants to find a solution and who doesn't."

A German paper prepared for Thursday's meeting of euro zone officials and seen by Reuters said the request was no basis for even starting to draft an accord on Friday. [ID:nL5N0VT547]

"The Greek letter is not clear at all, but opens immense room for interpretation," it read. "It ... represents a Trojan horse ... in substance putting an end to the current programme."

With Greece's EU/IMF bailout programme due to expire in little more than a week, Tsipras urgently needs to secure a financial lifeline to keep the country afloat beyond late March.

Athens asked for an extension to its "Master Financial Assistance Facility Agreement" with the euro zone, rather than the full bailout programme as euro zone governments led byGermany have insisted. Tsipras, who won power promising to ditch the bailout, is trying to secure funding without accepting all the demands for austerity and painful economic reform which are conditions of the EU/IMF programme.

U.S. Treasury Secretary Jack Lew spoke by telephone on Thursday with his Greek, Dutch and French counterparts, urging all sides to make concessions in the talks.

NOT TO BERLIN'S LIKING

Berlin can count on the support of north European fiscal hawks such as Finland and the Netherlands but also countries such as Spain and Portugal which have imposed austerity measures in return for aid and do not want Greece to get a softer deal.

But Greece also has sympathisers. Italian Economy Minister Pier Carlo Padoan warned of the risk involved in any Greek exit.

"We have to send a signal that the euro is irreversible," he told the magazine l'Espresso. "If a country were to leave, it wouldn't just mean one less country in the union but the transformation of the euro into a mechanism that can be undone."

Italian Prime Minister Matteo Renzi, a socialist who like Tsipras is aged 40 and still new to government, spoke to his Greek counterpart on Thursday, an Italian official said. Renzi also spoke to European Commission President Jean-Claude Juncker, a euro zone veteran, who has been trying to mediate.

In France, co-creator of the euro with Germany, Socialist Prime Minister Manuel Valls called the Greek move "a very encouraging sign that a solution is possible, and very quickly".

Credit ratings agency Standard & Poor's said a Greek exit would be less financially risky for the remaining euro zone members than it would have been during the last scare in 2012. Since then, policymakers have introduced the European Stability Mechanism, which could help governments under market pressure if Greece were to leave, it noted.

In the letter seen by Reuters, Greece pledged to meet its financial obligations to all creditors, recognise the existing EU/IMF programme as the legally binding framework and refrain from unilateral action that would undermine the fiscal targets.

It accepted that the extension would be monitored by the European Commission, European Central Bank and International Monetary Fund, a climbdown by Tsipras who had vowed to end cooperation with "troika" inspectors accused of inflicting deep economic and social damage on Greece.

However, the document stopped short of accepting that Greece should achieve a primary budget surplus, excluding debt service, equal to three percent of the country's annual economic output this year, as promised under the bailout deal.

Tsipras wants to cut that to 1.5 percent to allow more spending to ease the plight of the poor. The document spoke only of attaining "appropriate primary budget surpluses".

Crucial details remain to be clarified on the fiscal targets, labour market reforms, privatisations and other measures due to be implemented under the existing programme.

The six-month interim period would be used to negotiate a long-term deal for recovery and growth incorporating further debt relief measures promised by the Eurogroup in 2012.

Greek stocks initially rose on Thursday's developments, with the benchmark Athens stock index up 2 percent but it slipped back after the German statement, closing up just 1 percent on the day. Banks gained 9 percent but then shed much of that.

(Additional reporting by George Georgiopoulos and Lefteris Papadimas in Athens, Jan Strupczewski and Alastair Macdonald in Brussels, Madeline Chambers and Noah Barkin in Berlin and Jason Lange in Washington; Writing by David Stamp, Deepa Babington and Alastair Macdonald; Editing by Paul Taylor, Peter Millership, Giles Elgood, Toni Reinhold)

BBC News - Japan comes out of recession but growth still disappoints

Japan came out of recession in the fourth quarter of last year, but the world's third largest economy grew at a slower than expected pace.

The Japanese economy grew in the last quarter, compared to the previous two

The economy expanded by an annualised 2.2% in the three months to December in a preliminary reading, compared to forecasts for a 3.7% increase.

Japan's growth in the fourth quarter comes after the economy contracted for the two previous quarters.

Japan has been recovering from a sales tax hike, which dampened spending.

The economy grew 0.6% in the period from the previous quarter, but that also fell below forecasts of 0.9% growth.

Weak growth

The data showed a fragile recovery in the country where consumer sentiment remains soft even after Prime Minister Shinzo Abe delayed a second increase to the sales tax that was scheduled for October this year.

Private consumption, which accounts for about 60% of the economy, increased 0.3% in the fourth quarter, less than the 0.7% rise expected by economists.

Glenn Levine, senior economist at Moody's Analytics said exports "added solidly" to economic growth, accounting for about half of the expansion, while the rest of the economy remained relatively subdued.

Exports rose 2.7% in the fourth quarter compared to the third quarter, while imports were up 1.3%.

Analysis: Rupert Wingfield-Hayes, BBC Tokyo

Is Japan's economy back to growth?

As Aristotle is reputed to have said: "One swallow does not a summer make, nor one fine day", so one quarter of positive GDP growth does not make a trend.

Nearly two years after "Abenomics" what has really changed?

Vast amounts of money have been shovelled in to the Japanese economy. That has had two big impacts.

It has pushed up real estate and stock prices, and it has pushed down the value of the yen. The first has made rich Japanese richer; the second has made big Japanese exporters richer. But there it has stopped.

There has been virtually no trickle-down to the rest of Japan. Stagnant wages and rising prices through most of last year mean most Japanese actually feel poorer.

One sign of hope is that unemployment has fallen to just 3.5%.

A tightening labour market could finally force Japan's corporations to start parting with some of their vast cash piles in the shape of real wage increases - but don't hold your breath.

Business investment lags

The most disappointing component of the gross domestic product (GDP) figures was the "paltry" increase in business investment.

"Japan's corporate sector is enjoying record profit levels and sits atop a mountain of cash, with export-facing firms, in particular, benefiting from better export sales linked to the cheaper yen," Mr Levine of Moody's said. "Yet, so far firms have been reluctant to deploy any of this cash and invest in additional capacity."

This "issue of confidence" shows that firms do not believe that the domestic economy is improving, which is a reflection of whether Prime Minister Abe's economic policies termed "Abenomics" are succeeding, he said.

Japan's weaker than expected growth comes despite a series of stimulus measures by the government.

In December, the government approved a $29bn (£18.8bn) stimulus package to help businesses and consumers just two weeks after a victory by the prime minister in a snap election.

Markets, however, reacted positively to the growth figures with the benchmark Nikkei 225 hitting a nearly eight-year high of 18,047.07 in early trade, marking its highest level since July 2007.

Bloomberg News - Putin Lets Consumers Feel Pain as Russian Slump Deepens: Economy

A customer holds bread rolls as he stands with a shopping cart in the baked goods area inside a Perekrestok supermarket in Moscow. Consumers are retrenching after the ruble lost almost half of its value against the dollar in the past 12 months. Photographer: Andrey Rudakov/Bloomberg

(Bloomberg) -- Russian households are bearing the brunt of the blowback from the crisis in Ukraine and a tailspin in oil prices, setting the stage for the biggest drop in consumption in more than two decades that will deepen the country’s recession.

Crushed by a 44 percent slump in the ruble in the past year as prices soar, retail sales are set for what Otkritie Capital predicts will be their biggest decline since the breakup of the Soviet Union in 1991, when savings were wiped out and households endured food shortages and hyperinflation. That’s unnerved consumers like Svetlana Korotkova, who’s stockpiling cereals and canned goods to build up what she calls her “safety cushion,” a lesson she learned from perestroika-era deprivation in the 1980s.

“Government resources are very limited now, so I don’t expect strong help,” said Korotkova, a 42-year-old accountant who spoke as she browsed through a shopping mall in Tula, about 200 kilometers (125 miles) south of Moscow.

Six years after presiding over a one-third increase in pensions at the height of the last crisis, President Vladimir Putin, whose approval rating is near a record high, is now pegging changes in retirement payments to last year’s inflation as he steers the bulk of a 2.3 trillion-ruble ($37 billion) program to support lenders and industry, almost half of it to recapitalize banks. As prime minister in 2009-2010, Putin deployed what Goldman Sachs Group Inc. estimated to be the largest stimulus package among Group of 20 nations, totaling 9.8 percent of economic output.

Looming Recession

That stands in stark contrast to current government plans to battle a recession economists predict will last for four quarters. With little relief in sight for consumption, which accounts for about half the economy, Russia risks a more drawn-out crisis, according to Natalia Akindinova, director of the Development Center of the Higher School of Economics in Moscow.

“Now the anti-crisis plan is more focused on banks and industrial sectors, but not the sectors that are suffering the most,” Akindinova said. “The ones that suffer the most are trade, construction and services.”

Consumers are retrenching after the ruble lost almost half of its value against the dollar in the past 12 months. The ruble’s one-month implied volatility jumped to almost 90 at the beginning of January before paring the increase to 38 on Monday. That’s still almost double the level of the next most volatile emerging-market currency, the Brazilian real.

The ruble strengthened 1.9 percent to 62.2730 to the dollar as of 2:14 p.m. in Moscow.

Inflation Accelerates

Inflation, which soared to 15 percent from a year earlier in January, is forecast by the Economy Ministry to peak at as much as 17 percent this spring, a level not seen since 2002.

That would push price growth above the central bank’s benchmark interest rate, currently at 15 percent after a surprise cut in January. Bank of Russia Governor Elvira Nabiullina said the move was warranted because the recession-bound economy will take a bite out of inflation in the second half of the year.

With Putin considering a possible run for the Kremlin in three years, “this year is an opportunity to curb income-growth expectations in order to surprise on the upside by 2018,” Alfa Bank economists Natalia Orlova and Dmitry Dolgin said in a report.

Putin’s Support

Support for the Russian leader matched a record 88 percent in October and was at 85 percent last month, compared with 65 percent in January 2014, according to a Jan. 23-26 survey of 1,600 people by the Moscow-based polling company Levada Center. The results have a margin of error of 3.4 percentage points.

For 2015, the Economy Ministry predicts a decline of more than 9 percent in real wages after a 1 percent drop in 2014. That compares with an average annual increase of more than 10 percent in monthly wages in the past 15 years. Disposable incomes will probably shrink more than 6 percent, with retail sales set to slide 8 percent, according to the ministry’s updated forecasts, released last month.

If Putin has fewer policy levers to help consumers, that’s partly an acknowledgment of just how far Russia’s public finances have deteriorated. In the years that followed Russia’s last recession in 2009, the oil price the government needs to balance the budget has more than tripled from $30, according to Finance Minister Anton Siluanov.

Sanctions, Oil

Pressure on Russia’s finances is growing amid U.S. and European sanctions and a global oil glut that drove crude prices almost 50 percent lower last year. The government ran a deficit of 0.5 percent of economic output last year. With crude prices at $50 a barrel, the shortfall may widen to 3.8 percent, according to Economy Minister Alexei Ulyukayev.

After a rebound in the economy in 2010, growth decelerated every year since then. Consumer spending formed the backbone of the brittle recovery in the runup to the crisis in Ukraine and the oil price freefall in 2014.

Household consumption accounted for most or all expansion in gross domestic product between 2010 and 2013, according to a World Bank report published last year. It contributed 3.8 percentage points to GDP gains in 2012 and 2.3 percentage points the following year, when the broader economy gained 3.4 percent and 1.3 percent, respectively, the lender estimates.

Flashing Red

Now most consumer indicators are flashing red.

Consumer confidence plunged last quarter to the lowest in five years. The Russia Services Business Activity Index last month shrank to the weakest reading since May 2009, sapped by a drop in incoming new contracts, outstanding business and employment.

Russia will report consumption-related statistics this week. The annual drop in real wages accelerated to 6.1 percent last month, the biggest decline since 1999, according to the median estimate of 12 analysts in a Bloomberg survey. Retail sales probably fell 1.9 percent from January 2014, which would be the first negative reading since 2009, a separate poll showed.

“I don’t understand why this is happening to us,” said Svetlana Graiche, a human resources consultant in Moscow whose family had to forgo a vacation abroad and is reconsidering plans to send their son to a German-language school. “I expect there will be less work. God willing my income in rubles at least won’t change.”

Companies Suffer

The distress plaguing consumers is roiling a swathe of industries, from wine importers and music-streaming services to luxury hotels and retailers like O’Key Group SA and Euroset Holding NV. O’Key, a Russian food retailer that focuses on large supermarkets, blamed the economic downturn and the country’s retaliatory ban on some food imports from European countries and elsewhere for a decline in consumer traffic that last quarter led to a 5.1 percent drop in its like-for-like sales.

As Russia was staggering from the lowest oil prices since 2009, Putin responded in early December by ordering budget cuts of at least 5 percent a year in real terms for 2015-2017. This year, most expenditures will be reduced by 10 percent, with the exception of outlays on defense, pensions and agriculture.

“In this current geopolitical situation, if you listen to Russian media, social stability becomes much more important,” said Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki. “All that matters is for people to have their job and it doesn’t matter if their purchasing power is shrinking; it’s only important that they have their job. That’s why no one is worried about helping private consumption.”

Fraying Confidence

Even that confidence in the future is now fraying. A study by the Sociological Institute of the Russian Academy of Sciences found that only a third of respondents described their work situation as “good” and 40 percent said there was some likelihood they’ll be unemployed within the next year. The survey, conducted in November among 4,000 people older than 18 across all regions of Russia, found that 53 percent believe the country was facing a “tense, crisis” situation. No margin of error was given.

The severity of the crisis has reopened discussions about contentious topics such as a possible increase in the retirement age. Siluanov, the finance minister, said in an interview that authorities must conduct a “serious inventory of all social assistance, payments and benefits.” Every third Russian receives some social aid, making the system more generous than its Soviet predecessor, according to Siluanov.

Outlays on health care will be cut by more than 12 percent in 2015, while expenditure on education is reduced by 3.3 percent, according to this year’s budget plan.

“They are prepared to, in a way, sacrifice the consumers this time around and make them take most of the heat,” Liza Ermolenko, an economist at London-based Capital Economics Ltd., said by e-mail. “This part of the economy is going to be the one that takes most of the adjustment that is needed.”

To contact the reporter on this story: Anna Andrianova in Moscow ataandrianova@bloomberg.net

Reuters News - France hints euro zone should ease stance for Greek deal

1 OF 2. Protesters hold a giant Greek national flag during an anti-austerity and pro-government demonstration in front of the parliament in Athens February 15, 2015.

CREDIT: REUTERS/ALKIS KONSTANTINIDIS

(Reuters) - Debt-laden Greece and EU paymaster Germanystruck hardline postures ahead of a crucial meeting of euro zonefinance ministers on Monday on the future of an unpopular international bailout for Athens, but France called for compromise.

German Finance Minister Wolfgang Schaeuble maintained a typically tough line, telling German radio Greece had lived beyond its means for a long time and there was no appetite in Europe for giving it any more money without guarantees.

French Finance Minister Michel Sapin hinted at a slight easing ofeuro zone opposition to Greek requests for an end to austerity and a new debt deal, saying Europe must respect the political change in Athens.

 

Radical leftist Greek Prime Minister Alexis Tsipras's government was elected last month on a pledge to scrap the bailout, reverse austerity measures and get rid of supervision by the hated "troika" of the European Commission, the European Central Bank and the IMF.

Greece's euro zone partners to date have shown little desire to cut Athens any slack on the austerity demanded in return for some 240 billion euros ($274 billion) in financial assistance.

If Monday's meeting ends in a breakdown, Greece could be headed for a credit crunch that could force it out of the euro zone. Progress, however, could mean further negotiations, perhaps later in the week.

Government spokesman Gabriel Sakellaridis showed no sign that Athens was backing off from its core demands. "The Greek government is determined to stick to its commitment towards the public ... and not continue a program that has the characteristics of the previous bailout agreement," he said.

Tsipras had a late telephone call with European Commission President Jean-Claude Juncker on Sunday, whose office said the EU chief executive was "making a last effort in an extremely difficult situation".

Speaking on France 2 television, Sapin took a much softer line than has been heard from the euro zone in recent weeks, saying that there was "fortunately" some chance of a deal. He appeared to be positioning France to try to broker a compromise.

Sapin said Germany had a point in insisting that Greece stick to commitments made to its creditors, but Athens was justified in saying the Greek people had mandated the new government to pursue a different policy.

"Greece must respect European rules... be we must respect the Greek people's vote. There is a new policy and we must help Greece put this policy in place," he said.

There was no such flexibility from Schaeuble.

On Deutschlandfunk radio, he said he was skeptical there would be a deal on Monday and that the Greek government was behaving "quite irresponsibly".

FINANCE AND POLITICS

Bank deposit outflows in Greece have picked up as negotiations have shown little result. The ECB has authorized emergency funding for banks by the Greek central bank so far, but a failure in the talks could mean the imposition of capital controls.

Euro zone member Cyprus was forced to close its banks for two weeks and introduce capital controls during a 2013 crisis. Such controls would need to be imposed when banks are closed. Greek banks are closed next Monday for a three-day weekend marking the start of Orthodox Lent.

The ECB will review its policy on Wednesday in the light of the Brussels talks, but an ECB source said it was unlikely to pull the plug on Greek banks as long as the terms of a future program were still under discussion.

Greek bond yields inched up on Monday but investors remained cautiously optimistic that Athens would reach a new debt deal with its European partners later in the day.

The chief executive of Morgan Stanley bank, James Gorman, said he believed the likelihood of Greece negotiating a debt restructuring were greater than the country being forced out of the euro. He also doubted that the monetary union was in danger.

"I believe a euro zone break-up is highly unlikely, for reasons that go beyond the economy... but if a country leaves the euro, this will not mean the end of the monetary union," he told Italian daily la Repubblica.

Tsipras has requested a bridge program to be put in place for a few months while a new debt relief deal is agreed to replace the existing bailout, which has already forced drastic cutbacks onto ordinary Greeks.

The current program expires at the end of the month. A Eurogroup meeting last week ended without progress, although technical talks were later agreed and took place over the weekend to identify the gaps between the bailout scheme and the new government's plans.

Some of the problems facing the Eurogroup are semantic. The Greeks, for example, will not countenance anything that smacks of an "extension" to the old bailout or a continued role for the "troika".

Tsipras, who rode to power on a wave of anti-austerity and anti-bailout anger, would have a hard time explaining a climbdown so soon.

But even a cosmetic change could have practical consequences. An "extension" may not prompt many euro zone national ratifications unless it involves additional financial commitments from euro zone governments.

Any new financing program, on the other hand, might require several national parliamentary ratifications and could also bring Germany's Constitutional Court into play.

Among those requiring a parliamentary vote on a new bailout are Germany, Slovakia, Estonia and Finland, all identified by one veteran of EU meetings as part of a hard core of opponents to Greece's plan.

The Eurogroup's main debate will revolve around how to fund Greece until any new debt deal. Athens wants to reduce the primary budget surplus before debt service it is required to run, scrap privatizations, raise the minimum wage and spending on the poor, and reverse some labor reforms.

Greece said on Saturday that it was reviewing a 1.2 billion- euro deal for Germany's Fraport to run 14 regional airports, one of the biggest privatization deals since Greece's debt crisis began in 2009. It has also pulled the plug on the privatization of the ports of Piraeus and Thessaloniki.

($1 = 0.8785 euros)

(Additional reporting by Michael Nienaber, Andrew Callus and Francesca Landini; Writing by Jeremy Gaunt; Editing by Paul Taylor)

BBC News - IMF agrees $17.5bn reform programme for Ukraine

The IMF has agreed a $17.5bn (£11.5bn) loan to Ukraine as part of a new economic reform programme.

Christine Lagarde: "A turning point for Ukraine''

The Extended Fund Facility is designed to stabilise Ukraine's economy, restore growth and improve living standards.

On top of the IMF funding, the programme also agrees "other bilateral and multilateral funding" to a total value of about $40bn.

The World Bank will provide up to $2bn of that package and said it is "vital" that Ukraine pushes through reforms.

IMF managing director Christine Lagarde said the deal could prove a "turning point" for Ukraine.

But Ukrainian Prime Minister Arseniy Yatseniuk said that the aid package included "very difficult" reforms.

Ms Lagarde said it was an ambitious programme and not without risk.

She said: "This new programme offers an important opportunity for Ukraine to move its economy forward at a critical moment in the country's history.''

It came as Russia's Vladimir Putin, Ukraine's Petro Poroshenko, and leaders of France and Germany announced that a ceasefire would begin in eastern Ukraine on 15 February,

Ms Lagarde said that the deal was "a realistic programme and its effective implementation, after consideration and approval by our executive board, can represent a turning point for Ukraine".

Mr Yatseniuk said the IMF was demanding reforms to fight corruption, overhaul the energy sector, cut state expenditure and reduce state bureaucracy.

He said he expected a total of $25bn financial support from the IMF as part of a four-year facility, including $17.5bn to stabilise the financial situation in the country.

He added that the Ukrainian economy could grow in 2016 if "Russian aggression" was halted and internal reforms were a success

Bloomberg News - Who’s Afraid of the Rising Dollar? Not the Thriving U.S. Economy

(Bloomberg) -- Don’t believe everything you hear about the corrosive effect a more expensive dollar has on corporate America. U.S. businesses and the world’s largest economy can handle the greenback’s strength just fine.

Companies in the Standard & Poor’s 500 Index, from drugmaker Pfizer Inc. to Microsoft Corp., Procter & Gamble Co. and Royal Caribbean Cruises Ltd. have blamed the strongest dollar in more than a decade for crimping profits in 2014, or indicated it will hurt them this year.

The bigger picture is hardly so dire. Viewed as a whole, American business is much less vulnerable to the dollar’s rise than are the U.S.-based multinational giants. The exchange rate poses an even smaller threat to U.S. economic growth, which wrapped up its best year since 2010. While a strong dollar may weaken exports, it also means cheaper oil, less costly goods from overseas and continued low inflation -- all good things for an economy that’s powered by consumer spending.

“There’s going to be some pain for large corporations, but broadly speaking, the increase in the dollar is something the U.S. economy is able to absorb,” said Michelle Meyer, senior U.S. economist at Bank of America Corp. in New York.

Greenback’s Ascent

The U.S. currency gained against all 31 of its major peers last year. For American companies, that means earnings denominated in euros, Swedish kronor or Brazilian reals will purchase fewer dollars. From its mid-2014 level to early January, the broad trade-weighted dollar jumped 10 percent, its fastest six-month gain since the 2008 financial crisis, catching some companies unprepared.

Bank of America estimates a sustained 10 percent rise in the greenback trims about 3 percent off annual per-share earnings for the S&P 500 group.

The big multinationals are among companies with the most at stake. Overseas sales account for about 50 percent of the combined revenue for the 30 companies represented in the Dow Jones Industrial Average, according to Howard Silverblatt, senior index analyst at S&P.

Most U.S. businesses aren’t nearly so reliant on markets abroad. For members of the S&P Midcap 400 Index, foreign sales make up 23 percent of revenue, Silverblatt calculates. The figure drops to 16 percent for the S&P Smallcap 600 Index.

From the perspective of the $17.7 trillion U.S. economy, the exchange-rate impact shrinks to barely a blip. Bank of America reckons a 10 percent jump in the dollar after inflation would shave only 0.25 percent from economic growth a year later. Growth may accelerate to a 3.2 percent pace this year from 2.4 percent in 2014, according to the median estimate in a Bloomberg survey in January.

Trade Deficit

It’s true the trade deficit may widen as exports become less attractive to overseas buyers. Imports turn cheaper and may grow, which “diverts some demand away from domestic producers to foreign producers,” said Kevin Logan, chief U.S. economist at HSBC Securities USA Inc. in New York.

On the other hand, the price of imported manufactured goods will fall, holding down inflation and lifting Americans’ purchasing power, he said. That’s the more important effect, because consumer spending is almost 70 percent of gross domestic product, while exports account for just 13 percent.

Even companies with the highest levels of foreign receipts find ways to minimize their exchange-rate risk. One is by moving production to markets where they get their sales.

Supply Chain

“Most of my companies have been on a 20-year concerted effort to regionalize their supply chains to match that with their customers,” said Steven Winoker, a Sanford C. Bernstein & Co. analyst in New York who tracks companies from Honeywell International Inc. in Morris Township, New Jersey, to Danaher Corp. in Washington.

That means when a strengthening dollar reduces the relative value of overseas revenue, much of the cost of producing that revenue -- including labor, utilities and materials -- decreases by the same proportion.

“The U.S. corporate strategy abroad is based on direct investment, not exporting,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “You supply overseas demand with foreign factories. The best thing for U.S. companies is not a weaker dollar, but stronger world growth.”

Reinvesting Abroad

When the greenback gets more expensive, companies are under no obligation to exchange the profits they earn in other currencies into dollars and send them home. They can reinvest in the same foreign markets or just keep cash parked abroad, something many do anyway to avoid U.S. taxes. President Barack Obama’s budget estimates U.S. companies have stockpiled about $2 trillion of earnings outside the country.

And when corporations do make currency transactions, much of that exchange-rate risk can be managed through hedging. Fairfield, Connecticut-based General Electric Co. uses currency futures contracts to protect earnings.

GE estimates the dollar’s appreciation shaved fourth-quarter earnings by about 2 cents, to 52 cents a share.

“We hedge all of our transaction exposure to the extent we can,” Chief Financial Officer Jeffrey Bornstein said in a conference call with analysts Jan. 23. “We’re not at a point yet where we think it’s something that’s not manageable across our portfolio.”

Apple Inc. has already carried out its most aggressive steps in years to blunt the effects of currency swings on revenue, not only by hedging but also by raising prices for iPhones in Russia to counter the ruble’s plunge and charging more for mobile software applications from Canada to Europe.

That helps explain why Cupertino, California-based Apple expects “a strong March quarter” with revenue gains of 14 to 20 percent “in spite of the fact that you’ve heard from many U.S. companies these days that foreign exchange has become a challenge,” Chief Financial Officer Luca Maestri said in an interview on Jan. 27.

Slowdown Overseas

Even with the recent surge, the dollar is only coming off historical lows. The U.S. Dollar Index spot rate of 95 on Wednesday was still lower than in 1985, when it exceeded 160, or even the 2001 level that topped 120. The Intercontinental Exchange Inc. uses the index to track the greenback against currencies of six trade partners.

This time, companies have been quick to bemoan the currency surge in large part because it coincides with cooling markets from Europe and China to Russia and Latin America, said Nariman Behravesh, chief economist for IHS Inc. in Lexington, Massachusetts, and among the top forecasters of the economy over the last two years according to data compiled by Bloomberg.

That slowdown “is a much bigger deal than the exchange rate,” he said.

Ralph Lauren

Companies whose earnings are under pressure acknowledge the dollar is only one of several headwinds.

Apparel maker Ralph Lauren Corp. trimmed revenue growth projections for this year, and Chief Operating Officer Jacki Nemerov, commenting on a Feb. 4 earnings call, blamed “geopolitical tensions” as well as the dollar’s strength.

The U.S. is well positioned to cope, said Behravesh, who called the currency’s advance “a very strong positive for the U.S.” It is helping push long-term Treasury yields to record lows as overseas investors flock in to profit from dollar assets amid bets the Federal Reserve may raise its main interest rate from near zero by mid-2015.

“If it has to happen, this is actually the best time” for the greenback’s climb, said Behravesh, adding the rise in 2015 is unlikely to match last year’s.

Scott Brown, chief economist at Raymond James & Associates Inc., said the positive outlook for investment and hiring in the U.S. stays intact, because “the run-up in the dollar has been beneficial to the overall economy. That matters more than the hit to company earnings.”

“We’re hearing all these cautionary statements,” St. Petersburg, Florida-based Brown said. “But then you turn back and look at the U.S. economy, where demand is getting better all the time,” and the conclusion is, “we can get over it.”

To contact the reporters on this story: Shobhana Chandra in Washington atschandra1@bloomberg.net; Christopher Condon in Washington atccondon4@bloomberg.net