French industrial output fell unexpectedly in January, dealing a dose of grim economic news to the government just days before regional elections and jolting hopes for an upturn in the euro zone's second biggest economy. National statistics office INSEE said on Friday industrial production fell 0.5 percent month-on-month, far below the rise of 0.5 percent forecast by economists. Industrial production rose 1.2 percent year-on-year. "It's bad," said Deutsche Bank economist David Naude. "It's a challenge to the view that it (a recovery) is going on. This is a big surprise." The statistics office said industrial production excluding energy, agri-food businesses and construction -- considered by INSEE as the best measure of manufacturing output -- fell 0.3 percent in January compared with the previous month. The news cast fresh doubt over the strength of the recovery in France after state unemployment insurance agency UNEDIC said on Thursday that last year, when the economy flirted with recession, there was a net loss of 48,700 jobs in France. The news will be no help to President Jacques Chirac's centre-right government ahead of regional elections on March 21 and 28 which are seen as a key test of its popularity.
"This performance might support the worst of scenarios for 2004, that is a rebound without employment and businesses preferring to gain in productivity," said Laure Maillard, economist at CDC Ixis bank. The drop in industrial production followed a narrow rise in December, which was preceded by a fall of 0.6 percent in November. INSEE revised its December data to show a rise of 0.2 percent, compared to a rise of 0.3 percent previously. On a brighter note, the Bank of France said on Thursday activity was set to pick up in the coming months after "moderate" industrial activity in February, and the bank's chief Christian Noyer was quoted in business daily La Tribune as saying he had hopes French growth could accelerate. INSEE said the month-on-month falls in industrial and manufacturing output were driven by a 1.8 drop in production of consumer goods. Car industry output fell 2.3 percent.
Reflecting companies' cautious optimism about the future, French razor, pen and lighter maker Bic said on Thursday the business environment would remain competitive this year, though it still aimed to deliver higher organic sales growth than last year. Separately, INSEE said France's consumer price index rose 0.4 percent month-on-month in February on an EU-harmonised basis and 1.9 percent year-on-year. The customs office said France's trade surplus hit 838 million euros in January.///