Eurozone Industrial Output Shows Signs of Slowing

Industrial output across the 19 countries that make up the eurozone fell in June, official figures showed Monday, in a development that likely illustrates the export-sapping impact of the rising euro.

The Eurostat statistics agency said output declined by 0.6% during the month, giving up half the previous month's gain. Though monthly figures can be volatile, the fall, the first since February, was in line with predictions in financial markets, with many economists warning about the implications of the euro's rise in recent months, particularly against the currencies of the eurozone's two biggest export markets, Britain and the US, news outlets reported.

Factory output fell most in Ireland and Malta, while the eurozone's two largest economies, Germany and France also showed a decline. Italy and the Netherlands showed an increase in monthly output, however.

Overall, industrial production in the eurozone fell by 0.6% in June but still increased by 2.6% on an annual basis, staying below the 0.5% drop forecast in a Reuters poll of 32 economists.

After a 2.2% monthly rise in May, the production of capital goods, such as machinery, fell by 1.9%. The output of durable consumer goods declined 1.2% in June following a 1.4% rise in May, Reuters reported.

For May, Eurostat revised its overall estimates downwards by 10 basis points, to 1.2% for the monthly and 3.9% for the annual reading.

Euro's Rise

Against the British pound, the euro benefited from worries over Britain's scheduled exit from the European Union, with some market forecasters now predicting that the two currencies will soon be equal in value for the first time. On Monday, the euro was up a further 0.1% at 0.91 pound.

The euro has also risen about 10% against the dollar this year—to a 30-month high above $1.19 earlier this month—on the back of strong eurozone economic data, waning fears of a wave of populist politicians taking power across Europe, as well as uncertainty over the economic program of US President Donald Trump.

The output figures point to a currency impact, particularly in Germany, the single currency bloc's powerhouse economy where production fell by 1.1%. Though a stronger currency shows that confidence is returning to the eurozone economy, it does have the potential to weigh on exporters as it increases the price of their goods in international markets, all other things being equal.

Meanwhile, eurozone government bond yields rose 3-4 basis points across the board on Monday, bouncing from recent lows following stronger-than-expected Japanese growth.

Overall Economy Better

The general trend, though, is clear. The eurozone economy is in a better position than it has been for years. Fears of a breakup of the currency bloc have subsided while growth has risen to the long-run average and has outstripped the US so far this year.

In the second quarter, the eurozone economy grew by a quarterly rate of 0.6%. Economists said the June industrial production figures are unlikely to prompt any revision to that rate in this Wednesday's update, AP said.

"All things considered, we remain optimistic about the eurozone economy, and forecast above-consensus growth of 2.2% this year and 2% in 2018," said Jack Allen, European economist at Capital Economics.

Minutes This Week

DZ Bank strategist Daniel Lenz said: "With Fed and ECB minutes coming up and a speech from (Bundesbank member) Andreas Dombret, we may find out more this week."

The minutes of the July meetings of the US Federal Reserve and the European Central Bank are due to be released this week, on Wednesday and Thursday respectively, while Dombret is due to speak in South Africa later on Monday on the future of Europe and the euro.

Expectations that the ECB will follow other major central banks in unwinding stimulus have pushed yields higher since the start of the year.

Meanwhile, Brussels is set to call for more rigorous screening of foreign takeovers of European companies amid growing concern over a surge in Chinese investment into high-tech manufacturing, energy and infrastructure in Europe.

European Commission President Jean-Claude Juncker will announce the measures in a speech in September. Fears are growing that China may gain a technological edge by buying European know-how while limiting the role of EU investors in its domestic market.