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European Economies: French Industrial Output Unexpectedly Falls

European Economies: French Industrial Output Unexpectedly Falls

April 11 (Bloomberg) -- Industrial production in France, Europe's third-largest economy, unexpectedly fell in February, adding to evidence of a slowdown among the dozen nations sharing the euro.

Output by French factories, utilities and mines declined 0.5 percent from January, when it was unchanged, statistics office Insee said today in Paris. Economists had predicted stagnation, according to the median of 27 estimates in a Bloomberg survey.

French companies and consumers, squeezed by record oil prices, are curbing spending, crimping sales at businesses such as Pernod Ricard SA. The European Commission last week cut its 2005 growth forecast, citing higher energy costs. European Central Bank President Jean-Claude Trichet said April 7 he sees ``no clear signs'' that growth is gaining momentum.

``Growth in the euro region won't exceed last year's, which is really disappointing,'' said Stephen Webster, chief European economist at 4Cast in London. He estimates the euro region will grow 1.6 percent in 2005, down from 2004's 2 percent. ``Higher oil prices have certainly had a negative impact on growth.''

Manufacturing production fell 1 percent in February, the biggest decline since October, Insee said today. From a year earlier, industrial output rose 1.2 percent and manufacturing climbed 1.6 percent. The January industrial output figure was revised from a previously reported increase of 0.2 percent.

Stocks Fall, Bonds Rise

French stocks fell and bonds rose following the report. The CAC 40 Index slid 0.3 percent to 4112.61 at 12:40 a.m. in Paris. The yield on the 10-year note due in April 2015 fell 2 basis points to 3.58 percent.

``We definitely need a rebound in industrial production in March to be able to meet our growth forecast in the first quarter,'' said David Naude, a Paris-based economist at Deutsche Bank AG, who estimates a 0.5 percent expansion in France from the fourth quarter's 0.9 percent increase. ``We already predict a slowdown from the fourth quarter, but it seems like there's a risk that it could be an even bigger slowdown.''

Trichet on April 7 called ``persistently high'' energy costs a ``downside risk'' to growth in the euro region, saying that they are ``very unwelcome.'' Crude oil prices reached a record $58.28 a barrel in New York on April 4 and have climbed 40 percent in the past year.

Rising oil prices contributed to the European Commission's decision to cut its 2005 growth estimate for France to 2 percent from 2.2 percent. The commission on April 4 also lowered its euro region forecast to 1.6 percent from 2 percent.

The cost of raw materials used by British factories rose at a seasonally adjusted annual pace of 11.4 percent in the past two months, the fastest since records began in 1986, the National Statistics Office in London said today

German Decline

In Germany, industrial production fell the most in more than two years in February, the government said April 7. Germany's economy, Europe's biggest, is forecast by the commission to grow just 0.8 percent this year, the slowest in the euro region.

A 6.9 percent gain in the euro against the dollar over the past year has added to companies' margin pressure by making exports more expensive. Further undermining demand, global growth may slow to 3.1 percent this year after 3.8 percent in 2004, the World Bank said April 6.

France was one of two markets in the world last year where sales by Pernod Ricard, the world's third-largest liquor maker, fell. Sales slid 0.2 percent in France, which accounts for 18 percent of Pernod's drinks volume, compared with growth of 2.5 percent for all of Europe and 7.7 percent for Asia.

The average 2005 profit growth forecast for companies in the Dow Jones Stoxx 600 Index has dropped to 10 percent from 12 percent in December, according to FactSet JCF, a London research firm.

`Gray Mood'

In February, French production of cars dropped 1 percent from the previous month, while output of industrial components such as metals slipped 1.7 percent, Insee said today. Production of capital goods including planes fell 0.3 percent. The decline was 0.4 percent for consumer goods.

``The mood in France is currently rather gray,'' Gerard Mestrallet, chief executive officer of Paris-based Suez SA, the largest importer of liquefied natural gas into the U.S., told reporters after a briefing on April 5.

Adding to signs of faltering growth, French unemployment rose in February, keeping the jobless rate at 10.1 percent, the highest since January 2000. German unemployment reached a post-war high of 12 percent in March. French households and executives were the most pessimistic in 15 months in March, two Insee releases showed.

Prime Minister Jean-Pierre Raffarin said his goal of reducing unemployment by 10 percent this year may be set back by ``several months,'' according to an April 10 interview in the Nice-Matin newspaper.

``Unemployment will stay around 10 percent for the rest of the year and that's bad news,'' said Alexandre Bourgeois, an economist at Natexis Banques Populaires in Paris.

To contact the reporter on this story: Simone Meier in Paris at [e-mail].

To contact the editors responsible for this story: Heather Harris at [e-mail]. Chris Kirkham at [e-mail].


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