Eurozone down but not out

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Output from the Eurozone fell by 0.6% in June. France, Germany and Ireland’s poor data were primarily to blame.

This was partly driven by the soaring value of the Euro: it reached a 2 year high against the dollar.

So what does a stronger Euro mean?

Eurozone exports become more expensive and companies must become more competitive.

It’s also important to look at inflation. The inflation rate has reduced further.

And this is a worry for policy makers.

If the Euro keeps getting stronger and inflation keeps decreasing, it will be difficult to tackle these problems through a further loosening of monetary policy because there will be too few assets (bonds) for the European Central Bank to buy. This programme of quantitative easing is up for renewal near the end of the year.

However, let’s think of the positives.

A stronger Euro means confidence is returning to the Eurozone: it wasn’t too long ago when some were predicting the end of the union. What’s more, production data was more positive overall, showing a 2.6% rise from last year. There’s also a consensus that the Eurozone will grow this year. Finally, the Eurozone is out doing US growth.

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