French firms increased industrial output by a lower-than-expected 0.2 percent in May, indicating the recovery in the euro zone's second largest economy is still cautious, figures released on Monday showed. Industrial output excluding energy, agri-food businesses and construction -- considered by statistics office INSEE to be the best measure of manufacturing output -- showed a rise of 0.5 percent versus April. The overall output figure was below a forecast by economists polled by who expected May industrial output to rise 0.4 percent. "In relation to the better-than-expected recovery we were expecting, it is disappointing," said Nicolas Claquin, economist at CCF, noting the relatively weak performance of intermediate goods which traditionally spearhead recovery. INSEE also revised up April's industrial output data to show a fall of 0.3 percent versus a drop of 0.4 percent. It revised the figure for April manufacturing output to a rise of 0.3 percent from an increase of 0.4 percent. Dominique Barbet, economist at Paribas, said there was no cause for alarm. "This confirms that industrial activity is holding up well, something which is also reflected in the consumer spending data," he said. "The second quarter will perhaps not be as good as the first quarter, but it is still a very respectable performance." The May data showed output of consumer goods fell 0.5 percent month-on-month, while automobile production rose 1.1 percent. Production of intermediate goods rose 1.2 percent versus April while agri-food output was down 0.2 percent.
OUTLOOK MIXED
The figures followed mixed French data which showed growth in the manufacturing sector picked up speed in June, but consumer confidence failed to register any change despite an improving economic outlook. The /CDAF Purchasing Managers' Index (PMI) was 55.8 in June, its highest level since October 2000, as firms cranked up output to meet rising demand from abroad, according to data released earlier this month. However, the jobless rate remained stuck at 9.8 percent in May while the consumer confidence index was mired at minus 23 in June, unchanged from the previous month, data from INSEE showed. Household confidence has been sapped by President Jacques Chirac's decision not to replace his unpopular prime minister after the ruling conservatives suffered heavy defeats in regional elections in March and European elections in June. Prime Minister Jean-Pierre Raffarin cautioned last week that the impact of growth on unemployment queues would not be felt right away, but said growth should create more jobs in the second half of the year. Analysts said that despite better-than-expected growth in the first quarter, companies were reluctant to hire more staff and were concentrating on improving productivity instead. "In terms of growth, we are expecting quite a clear slowdown in overall activity in the second quarter, given that the first was boosted by one-off factors," said Bruno Cavalier, economist at Credit Agricole. He forecast France would post economic growth of 0.4 percent in the second quarter versus 0.8 percent in the first three months of the year. This was in line with a forecast 2.1 percent growth for the year as a whole, Cavalier said. INSEE last month raised its estimate for 2004 growth to 2.3 percent from 1.7 percent.///www.reuters.com