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European Economies: French Industry Output Declines (Update1)

European Economies: French Industry Output Declines

June 10 (Bloomberg) -- French industrial production dropped for a third month in April and exports excluding weapons fell, adding to signs economic growth is slowing.

Production at factories, utilities and mines in Europe's third-largest economy declined 0.3 percent from March, when it slipped a revised 0.3 percent, statistics office Insee said today in Paris. France's trade shortfall widened to a record 3.22 billion euros ($3.9 billion) from 2.34 billion euros in March.

President Jacques Chirac's popularity plunged to a record low last week, polls showed, and he fired his prime minister amid discontent over a 10.2 percent jobless rate. French manufacturers in May grew the most pessimistic in 19 months, and consumer confidence fell. Schneider Electric SA, the world's biggest maker of circuit breakers, last week said it's cutting jobs in France.

``French industry is on its way to recession,'' said Marc Touati, chief economist at Natexis Banques Populaires in Paris. He forecast a 0.2 percent drop in April industrial production.

The euro was little changed at $1.2235 at 1:01 p.m. in Paris. The currency has weakened 9.9 percent and the yield on French 10- year bonds declined 0.54 percentage point this year to 3.13 percent as the economy of the dozen euro nations slowed.

Slowing Growth

The production level was unchanged from a year earlier and March's figure was revised higher from a previously reported drop of 0.5 percent. The three months of falling industrial production was the longest stretch of declines in more than 2 1/2 years.

Manufacturing rose 0.5 percent in April after a 0.7 percent drop in the previous month, today's report showed. From a year earlier, it rose 0.1 percent.

Growth prospects in Europe are deteriorating, putting the euro region on pace to lag the U.S. for the 13th year in the past 14. The European Central Bank last week cut its 2005 growth estimate for the third time in six months. It forecast expansion of about 1.4 percent. The Organization for Economic Cooperation and Development predicts the U.S. economy to grow by 3.6 percent.

The Berlin-based DIW, one of Germany's six main government- sponsored economic institutes, today lowered its prediction for second-quarter German growth to 0.2 percent from 0.4 percent, citing a slowdown in the retail, hotel and restaurant industries.

Italian Exports

A 4.1 percent drop in Italian exports in the first quarter helped push the economy into recession, Rome-based statistics office Istat said today. The agency confirmed its May 12 estimate that the economy contracted 0.5 percent in the period.

France's economy, which contributed the most to euro region growth last year, expanded at a weaker-than-expected 0.2 percent in the first quarter from the previous three months. In the year, the economy may struggle to reach the 2 percent growth predicted by the European Commission on April 4, said Laure Maillard, an economist at Ixis CIB in Paris.

A 2 percent expansion ``doesn't seem very realistic,'' said Maillard, who predicts 1.4 percent growth this year.

France's trade shortfall widened to 3.22 billion euros ($3.9 billion) in April from a revised 2.34 billion euros in the previous month. Exports of non-military products dropped for a third month to 28.08 billion euros, as shipments of capital equipment fell. It was the country's 11th straight deficit. Overall, exports were little changed at 28.6 billion euros.

Net trade shaved 0.2 percent off first-quarter growth in gross domestic product as exports fell and imports climbed.

Imports rose in April to 31.8 billion euros from 30.6 billion euros in March as France purchased more British and German pharmaceuticals, and cars made in Germany and Spain. France bought more components and machinery from Europe. Imports of Asian components such as chemical goods increased.

`Bleak' Outlook

The drop in France's April production was led by a 4.9 percent decline in energy, which includes power and refined products. French power output slipped 9.7 percent in April from March, according to Reseau de Transport d'Electricite's Web site.

``The outlook in the short term is fairly bleak,'' said Elwin de Groot, an economist at Fortis Bank Nederland NV in Amsterdam. ``We shouldn't expect too much in the coming months.''

Schneider, based near Paris, said June 3 that it will eliminate 280 jobs in France as it boosts production in lower- cost, faster-growing regions. The company has generated 60 percent of its costs in Europe and 40 percent of its sales.

Europe `Concern'

``We haven't felt an improvement and Europe remains a very strong point of concern to us,'' Jean-Pascal Tricoire, chief operating officer of Schneider said in an interview last week.

Paris-based Remy Cointreau SA, the maker of Piper Heidsieck champagne, said June 8 annual profit fell 68 percent after it wrote down the value of some brands as European demand slumped.

In April, French production of cars rose 0.7 percent after a 1.4 percent drop in the previous month, today's report showed. Production of consumer goods, including pharmaceuticals, advanced 0.7 percent, and production of capital goods such as planes and machines increased 0.6 percent.

Chirac last week fired his prime minister, naming Dominique de Villepin as his replacement. The new premier outlined on June 8 a 4.5 billion euro plan to cut a 10.2 percent unemployment rate. Chirac's approval rating fell 8 points to 24 percent, according to a survey of 1,000 French people conducted from May 30-31 for Le Figaro Magazine by TNS-Sofres. No margin of error was given.

To help spur growth and stimulate demand, politicians including Italian Prime Minister Silvio Berlusconi as well as the OECD have urged the ECB to lower borrowing costs. The ECB has held its benchmark interest rate at a six-decade low of 2 percent since June 2003. Interest rate futures trading shows some investors are anticipating a reduction.

The implied rate on the December Euribor futures contract was at 2.04 percent from 2.61 percent at the start of the year. The contracts settle to the three-month euro area inter-bank offered rate, which has averaged 15 basis points more than the ECB's main rate since the euro's start in 1999.

For now, ECB President Jean-Claude Trichet is showing no signs of heeding such calls, calling rates this week ``appropriate,'' a word policy makers have used in the past to signal they have no intention to change credit costs.

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


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