PARIS, Oct 10 - French industrial output fell an unexpectedly hefty 0.9 percent in a heatwave-hit August versus July, statistics office INSEE said on Friday in a report that strengthens the view that France is within a whisker of recession. August was the month when record temperatures of 40 degrees centigrade and more caused havoc in France, killing thousands of people and millions of chickens as well as slowing the pace of life even further than normal for a peak summer holiday month. INSEE, which also changed its readout for July to flat from negative, said overall production in August was down 1.2 percent compared with a year earlier -- boding badly for third-quarter growth. "This is a lot lower than expected and means the industrial sector will be in recession in the third quarter -- probably down around 0.5 percent -- which is bad news for GDP," said Stephane Deo, senior economist at UBS Warburg in Paris. "The service sector is improving, but the industrial output figures, like those from Germany, are terrible. We can't rule out the risk of a recession in the economy. Even INSEE's forecast of 0.2 percent (GDP) growth in the third quarter may be wishful thinking. We could be closer to zero."
Industrial output excluding energy, agri-food business and construction -- considered by INSEE as the best measure of manufacturing output -- fell 0.8 percent on the month, giving credence to fears among some economists that the third quarter will not lift France completely clear of recession. France is banking on third quarter growth, however modest, to avoid recession -- defined as two consecutive quarters of contraction -- after economic output shrank 0.3 percent in the April-June period and meagre first quarter growth of 0.1.
HEATWAVE TOLL
Other data on Friday showed September consumer prices rose 0.5 percent, in EU-harmonised terms, as clothes prices bounced back from summer sales and the heatwave hiked fresh food prices, leaving the annual inflation rate at a robust 2.3 percent. "We expected a rise mainly from fresh food products but not such a strong one. The heatwave had a more extended impact on prices which is very bad news," said Laure Maillard at CDC Ixis. "This increase, combined with the rise in tobacco prices in October, will reduce purchasing power and probably affect consumer spending for the second half, weighing on growth." Economists polled by in advance had forecast August industrial output flat versus July and down 1.3 percent on the year, and September consumer prices up 0.2 percent on the month and up 2.0 percent on the year.
ESCAPE FROM RECESSION TO BE NARROW
The figures came after Prime Minister Jean-Pierre Raffarin this week referred to France's economic situation as "recessionary" and said that negative growth in the first half of the year was weighing on business morale. INSEE this week slashed its 2003 growth forecast to just 0.2 percent in a report that undercut the gloomiest predictions of a government fighting a swollen deficit and high unemployment. It said the August heatwave, which killed 15,000 people, up to four million chickens and turkeys, and destroyed crops, was partly responsible for the downgrade. INSEE predicted France narrowly escaping the recession that has snared Germany and Italy, however, forecasting growth of 0.2 percent in the third quarter and 0.4 percent in the fourth.
INSEE recently reported a rise in its business confidence index for September, to 93 from 92 in July. Yet in more pessimistic data, a /CDAF Purchasing Managers' Index (PMI) survey showed last week that activity in France's manufacturing sector shrank for a seventh month in September as firms shed more jobs and export orders fell. Toulouse-based European plane maker Airbus said this week that it saw weak deliveries in the third quarter and French car parts maker Faurecia also announced disappointing third-quarter sales figures.//