PARIS, Sept 12 - French industrial output fell by 0.3 percent in July, signalling a weak start to the third quarter for the euro zone's second largest economy after it contracted in the April to June period, data showed on Friday. National statistics office INSEE said industrial output fell 1.5 percent year-on-year. The month-on-month drop came in below economists' forecasts for no change from June production levels. The industry production figure was dragged down from June by shrinkage in the energy and agriculture and food industries. INSEE said industrial production excluding energy, agri-food businesses and construction -- considered by INSEE as the best measure of manufacturing output -- rose 0.3 percent in July compared with the previous month.
Economists said the readout showed the economy was weak. "This is not the kind of number consistent with recession, but it's not the kind of number consistent with a pick up either," said Deutsche Bank's David Naude. Emmanuel Ferry, at brokerage Exane, was more downbeat. "Industrial production shows we are still in a recession situation," he said. "Several indicators now show that Euroland has been through the worst, but France traditionally lags behind in the economic cycle." "We can...expect the economy to remain weak for a good part of 2004," he added. "Components of the survey show this trend very clearly: semi-finished goods, which represent the best signal of a rebound, remain in negative territory and capital goods are weak, which means businesses are still not investing."
July production of semi-finished goods fell 0.6 percent month-on-month, while industrial capital goods output rose 0.3 percent from June. INSEE revised its June data to show a month-on-month rise in industrial output of 1.0 percent compared to 1.2 percent previously reported. The July fall in overall industrial output comes just as France seeks to stave off a recession which has already snared neighbours Germany and Italy. Negative growth in the third quarter would push France into recession -- defined as two consecutive quarters of contraction. The main hope of avoiding recession rests with the services sector, which accounts for around three quarters of business output in France and has held up despite the slowdown. Figures on Thursday showed French non-farm payrolls were stable in the second quarter of 2003, with the services and construction sectors making up for industry's job losses.
Despite the steady payroll data, many economists expect France's unemployment rate to rise further in the coming months after hitting 9.6 percent in July, as businesses cut costs to repair profit margins. "We face an intensified competitive environment," the chairman and chief executive of French razor, pen and lighter maker Bic , Bruno Bich, said on Thursday after his company posted a 7.4 percent drop in first-half net profit. "We do expect a better second half, but still a lower operating margin on the full-year basis compared to last year." French Finance Minister Francis Mer said on Wednesday that economic recovery in Europe is tied to a U.S. rebound and will lag any improvement in the United States by around six months. Budget Minister Alain Lambert said earlier this month the French economy may grow by only 0.5 percent this year.//