By Brian Rohan
BERLIN, Nov 4 (Reuters) - The euro's strength against the dollar is likely to dampen German exports, but companies' competitiveness will probably shield them from any major negative effects.
The European single currency has climbed roughly 20 percent against the dollar since March, sparking concerns among politicians and policymakers that its rise could hit exporters and damage the region's fragile recovery.
Some countries using the euro may feel serious pain if the rise proves lasting, making euro-denominated goods dearer on world markets than similar dollar-priced products.
But Germany is less affected by currency appreciation than others since many of its exporters lead specialist fields where brand and quality help fend off price competition.
"Wage moderation over the last decade has helped. Even since 2006, Germany has steadily gained cost competitiveness," said Carsten Brzeski, an analyst at ING Financial Markets.
"Exports are inelastic... A strong euro isn't that bad because it brings improvement to the terms of trade," he added.
Germany has been the world's biggest exporter of goods since 2003, though China is expected to overtake it soon, possibly this year. Demand for capital investment goods, a traditional German strength, has suffered severely in the global slump.
After a sharp drop following the collapse of U.S. investment bank Lehman Brothers in September last year, German exports will not return to 2008 levels before 2012, the BGA exporters' association says.
But the fact that some 80 percent of German goods sold abroad are factored in euros -- and only around 8 percent sold in the United States -- has helped protect exporters.
On top of that, the euro has risen more slowly than in 2007 when ECB President Jean-Claude Trichet slammed an 11 percent rise and 4.7 percent trade-weighted climb in 3-1/2 months as "brutal."
And as ING's Brzeski calculates, the trade-weighted exchange rate of the euro versus the dollar has only risen some five percent in nominal and real effective terms since March.
"What's really problematic is when the swings are too rapid, like a jump from $1.50 to $1.60 over a month," he said.
PAST EXPERIENCE
If history is any guide, the competitiveness of German firms shows the key sector's fate is much more closely intertwined with a recovery in foreign demand than the value of the euro.
When the euro jumped some twenty percent against the dollar in 2007, German exports kept on rising, dipping only slightly at the end of the year after the euro reached the $1.50 mark.
And exports continued to hold as the euro hit a record of $1.60 in summer 2008, despite worsening economic conditions.
German exporters are upbeat despite the euro-dollar exchange rate, which was around $1.47 on Wednesday, unlike neighbouring France, which has called a euro at $1.50 a disaster and called for an international exchange rate discussion.
The BGA has said Germany's trade prospects will brighten in coming months despite predicting a further rise to around $1.60, and has forecast export growth of up to 10 percent next year.
The longer Germany, Europe's largest economy, continues to cope with the euro's strength, the more unlikely it seems the European Central Bank would alter its monetary policy, say, by buying dollars to push up the value of the greenback.
"Nothing would warrant ECB intervention anytime soon. And on the short term the high euro doesn't make much of a difference for other euro zone countries either," said Ralph Solveen, an economist at Commerzbank.
TRANSATLANTIC TRAVAILS
Despite the sector's overall resilience, some German exporters will likely feel a pinch from their rising currency.
"The companies most affected are transatlantic -- aircraft manufacturing, the auto industry, chemicals, optics, and electrical products," said BGA economist Jens Nagel.
Last month German airplane engine maker MTU Aero Engines cut its 2009 sales target, saying the weak dollar hurt some of the company's growth and that some earnings targets could be at risk if the dollar rate deteriorated further.
And European aerospace firm EADS has stepped up calls for action to help exporters cope with the weak dollar.
Exporters from Germany's small and medium sized firms known as the Mittelstand are more exposed to the euro-dollar rate because they are less able to hedge against currency swings.
"A fast appreciation of the euro would be a nightmare", for them and transatlantic-oriented firms, the BGA's Nagel said.
Still, morale among Mittelstand firms continues to improve from a record low last March, state bank KfW said on Tuesday.
Emerging markets are helping to pick up the slack.
The latest trade data from the Bundesbank show that over the June-August period, China was the only major export market to show year-on-year growth, rising 19.8 percent in August.
"What we're losing in transatlantic trade we're gaining in places like China. It doesn't fully compensate for the U.S, but emerging countries could soon take up the slack," said Nagel.
(Additional reporting by Maria Sheahan and Scott Barber; Editing by Victoria Main)