Paris, April 15 (Bloomberg) -- French manufacturing grew at less than half the pace of the previous month in February and six German research institutes cut their growth forecast, adding to evidence Europe's economy will be slow to recover. French factories increased production 0.3 percent from the previous month, compared with a gain of 0.7 percent in January. The RWI institute said it and five other German state-funded think tanks expect Europe's largest economy to expand 0.5 percent this year, compared with growth of 1.4 percent predicted in October. ``The economy is bound to recover, but the recovery is not necessarily just around the corner,'' ECB Council Member Ernst Welteke said in a speech in New York last night.
The war in Iraq, which began on March 20, has exacerbated a slump in consumer demand, hurting manufacturing and delaying a recovery. The European Union last week said the 12-nation euro economy may have contracted in the first quarter and will barely grow in the second. Germany and France account for 51.8 percent of the region's gross domestic product. ``Nobody can expect the German economy to make big strides this year,'' said Anton Boerner, president of the BGA association of wholesalers and exporters, which represents 135,000 companies. Chancellor Gerhard Schroeder's government commissions a twice- yearly report from the six institutes. They are Munich's Ifo institute, the Kiel Institute for World Economics; the IWH institute in Halle; the RWI institute in Essen, Hamburg-based HWWA and Berlin's DIW German Institute for Economic Research. The government contributes money to the institutes and uses their forecasts to estimate tax revenue.
Adecco Cuts Costs
Growth has been slowing across Europe. The economy of the dozen nations sharing the euro will grow 1 percent in 2003, the European Union's executive branch predicted last week, retreating from November's forecast of 1.8 percent. Adecco SA, the world's largest provider of temporary workers, said it's cutting costs to meet a drop in demand as unemployment rises in Europe's biggest economies. In France, the Swiss company's biggest market and Europe's second-largest employer of temporary staff, the jobless rate rose to a 2 1/2-year high of 9.2 percent last month. Clients include carmaker PSA Peugeot Citroen, which is trimming its workforce. Rhodia SA, France's largest specialty chemical maker, said on April 7 sales and earnings fell in the first quarter. Peugeot expects the European car market to shrink by 2 percent in 2003, Chief Executive Officer Jean-Martin Folz said last week. Skirting Recession Industrial production in France, which includes energy as well as manufacturing, increased 0.6 percent in February. Excluding energy and food, output rose 0.3 percent. Production of consumer goods rose 1.1 percent. Still, consumer spending, which has kept the French economy from shrinking, is losing steam. Shoppers trimmed spending on manufactured goods in February for the first time in three months. Household demand accounts for more than half of France's gross domestic product. ``The French economy continues to deteriorate, and the war has just made it worse,'' said Rachid Medjaoui, who manages about $3 billion at Sogeposte, the investment arm of the state postal service. ``The challenge will be to avoid a recession this half.'' The French government last month trimmed its growth forecast for this year to 1.3 percent, from 2.5 percent in September. The country's economy grew 1.2 percent last year, the slowest pace in six years. The euro's 22 percent gain in the past year is making European exports less competitive. French sales abroad dropped to a 14-month low in February. Industrial production declined in Germany and Italy in February.//www.bloomberg.com