PARIS, Aug 12 - French industrial production rose by 1.2 percent in June from May, its sharpest increase in almost two years, signalling a modest upturn in the economy after three consecutive months of shrinking output, data showed on Tuesday. However, the jump was fuelled largely by a rise in energy output as temperatures soared, prompting consumers to snap up electric fans. National statistics institute INSEE said overall production was down 1.3 percent year-on-year.
The month-on-month jump in June output was the highest since August 2001, when production rose 1.4 percent. It exceeded economists' forecast of a 0.7 percent increase. "The rebound was expected with a large contribution from the energy sector because of the heatwave and drought since June," said Laure Maillard, economist at CDC Ixis. "This is not the beginning of a trend." INSEE said the growth in output in June was due largely to a 4.0 percent jump in energy production. Output of food and intermediary goods rose 1.0 percent month-on-month, but car production fell 0.8 percent, it said. The impact of the heatwave was likely to be felt in data for July and August as temperatures hover around 40 degrees Celsius (104 Fahrenheit), their highest levels since 1947. How much energy will contribute to overall output remains unclear, however, as state power utility Electricite de France [EDF.UL] is straining to keep pace with demand.
EdF chief Francois Roussely said on Tuesday that France could avoid blackouts for now, even though it has been forced to cut power production at some of its nuclear plants because river temperatures are too high to be used for the cooling process. Economists said the June figure was not sufficient to compensate for a weak overall performance in the rest of the second quarter. Some expect figures due to be released on August 20 to show the French economy contracted between April and June. "The better than expected figure for June does not change the overall weak tone of the second quarter," said Maryse Pogodzinski, economist at J.P. Morgan. "On the other hand, it is very encouraging because we are ending the second quarter on a more positive note," she added. "This is still not a strong bounce, but rather it sets the scene for a moderate recovery in the second half of the year."
SECOND QUARTER LACKLUSTRE
Industrial production excluding energy, agri-food businesses and construction -- considered by INSEE the best measure of manufacturing output -- rose just 0.6 percent in June from May. INSEE revised its May data to show a 1.3 percent drop in overall output, versus the 1.4 percent fall initially reported. Manufacturing output fell 1.7 percent in May, unchanged from the figures reported last month. The French data contrasted with figures from Germany showing a surprise 0.2 percent month-on-month fall in June industrial output, sparking renewed fears that the euro zone's leading economy is in recession.
Firms are still struggling to rebuild their shattered profit margins. The task has been complicated by a strong euro, which is weighing on already weak demand. Electrical equipment maker Schneider said recently it expected its operating margins to improve in the second half of the year as it cut costs, trimmed jobs and shifted some production from the euro zone to cheaper high-growth markets. INSEE separately reported that French consumer prices nudged up 0.1 percent in July in EU-harmonised terms, as price cuts linked to the summer retail sales offset a rise in the cost of services, in particular transport and communications. The rise, marginally above the "no change" forecast by economists, left the annual inflation rate stable at 2.0 percent, bang in line with expectations.
"It is not that good because July's inflation figures are usually lower. We must be very careful with the energy component, and more specifically oil prices that remain under high pressure because of the Iraqi situation," said Maillard.//