Paris, March 12 (Bloomberg) -- French industrial production increased in January after dropping the most in more than five years in December, led by energy output. Companies may pare production again in coming months, analysts say. ``This is not the beginning of an economic recovery,'' said Adolf Rosenstock, an economist at Nomura International Plc. ``It's a correction and one that only recovers last month's decline in part.'' French output rose 1.5 percent from December, when it plunged 1.7 percent, the government said. Economists predicted a gain of 0.5 percent. German production also rose in January after dropping to the lowest in almost three years a month before, a report yesterday showed.
Manufacturing, which accounts for a fifth of France's gross domestic product, will still contract this quarter, analysts predict. A stronger euro combined with the threat of war risks hurting growth further in coming months. Europe's third-largest economy grew 1.2 percent last year, the slowest pace since 1996. ``A recovery is unlikely before the end of 2003,'' Henri Lachmann, chairman of Schneider Electric SA, said last week. The world's largest maker of circuit breakers is firing workers and cutting costs amid waning demand. ``The first two months of this year are no different than the last three quarters.'' Alstom SA, whose power equipment generates a fifth of the world's electricity, posted a record loss this fiscal year. The Paris-based company said today it will sell its power transmission and distribution business and issue new stock to raise cash.
Euro Woes
French energy production rose 6.8 percent in January. Excluding energy and food, output climbed 0.6 percent, following a decline of 1.8 percent in December. European manufacturing unexpectedly expanded in February for the first time in six months. Still, the combined economy of the dozen nations that share the euro may shrink in the first quarter after growing at the slowest pace in almost a decade last year, the European Union said. The euro's 26 percent gain in the past year is making European exports more expensive. French sales abroad dropped to a one-year low in December. Europe's single currency climbed close to a four-year high against the dollar on Monday after U.S. Secretary of State Colin Powell said the possibility of war with Iraq is ``rapidly increasing.'' ``The stronger euro is already eating away at exports,'' said Jean-Louis de Fommervault, economist at France's Federation of Mechanical Engineering, which comprises about 3,000 French companies. ``Industrial activity remains flat.''
`Prolonged Threat'
The European Central Bank last week pared its benchmark lending rate by a quarter point to 2.5 percent and signaled more cuts may come. Investors expect another rate reduction in the second quarter, interest rate futures trading shows. The rate on a three-month euro deposit maturing in June was at 2.26 percent late Tuesday. ``The rather prolonged threat of war has already undermined confidence,'' ECB President Wim Duisenberg said Thursday. He now expects growth of just 1 percent for this year. Cap Gemini SA, Europe's largest computer-services company, reported a loss for last year and is shedding almost 2,000 jobs over the next 12 months. Altran SA, a technology provider, said sales declined last quarter. Consumer spending, which has so far kept the French economy from shrinking, is also faltering. With unemployment at a 2 1/2 year high, shoppers cut spending for the second month in January. Household demand accounts for more than half of GDP. Receding orders prompted companies to pare production plans last month. ``Even after a war in Iraq, unemployment will continue to rise,'' said Amelie Derambure, an economist at Credit Agricole SA. ``People blame the war for too many things -- they'll be disappointed when they realize that there is a lot more wrong with the economy.'' //www.quote.bloomberg.com