French industrial production had its biggest drop in 16 months in August, led by the automobile industry, as surging oil prices crimped growth in Europe's third- biggest economy. Production on goods ranging from cars to food fell 1.9 percent from July, when it was revised to no change from 0.2 percent growth, Paris-based government statistics office Insee said. Economists polled by Bloomberg News had expected a 0.1 percent gain in August, according to the median of 20 forecasts.
``Growth coming from the U.S., the U.K. and emerging markets is a bit less supportive, and the impact of rising raw material prices is coming on the top of that,'' said Nicolas Claquin, an economist at HSBC-CCF in Paris, before the report. The decline is the latest sign that growth in the 12 nations sharing the euro may have peaked. The manufacturing and service industries in the region slowed in September and retail sales fell as unemployment held at a five-year high of 9 percent in August, reports last week showed. Industrial production in Germany, France's biggest trading partner, fell 1 percent in August.
`Dark Spot'
``The dark spot is Germany,'' which is struggling to grow, said Olivier Gasnier, an economist with Societe Generale SA in Paris, before the report. ``The recovery in exports is fading.'' European Central Bank President Jean-Claude Trichet said on Oct. 7 the 60 percent gain in oil costs this year makes the growth outlook subject to a ``good deal of uncertainty.'' Oil prices have climbed 65 percent this year and yesterday touched a record high of $53.80 a barrel in New York. ``The main risk for our economy comes from oil prices,'' European Union Monetary Affairs Commissioner Joaquin Almunia in an interview during a conference in Amsterdam yesterday.
Growth in France, which outpaced the euro region average in the first and second quarters, will slow to a quarterly 0.6 percent in July-September from 0.7 percent in the second quarter and 0.8 percent in the first, the Bank of France predicted last month. The decline in France's August production was led by a 14.4 percent plunge in auto industry output.
Auto Industry
The drop in industrial production is ``almost entirely'' due to an ``unusual and temporary'' closure of a production line of a ``large'' carmaker for most of August, Insee said. Food production fell 1.5 percent, while energy production dropped 1 percent, Insee said. Production of capital goods such as machinery and planes rose 0.5 percent and components such plastic, metal and computer chips dropped 0.9 percent. Output of consumer goods such as shampoo added 0.4 percent. The region's recovery remains ``relatively timid,'' as slowing global demand weighs on exports and consumer demand shows few signs of a rebound, the Brussels-based European Commission said in its quarterly economic report on Oct. 5. Expansion in the euro region slowed to a quarterly 0.5 percent in April-June as the pace of consumer spending growth halved. ``Exports, mostly outside Europe, are the main driver of growth,'' said Yvonick Renard, head of economic research at the French Mechanics Industry Federation, which includes companies such as SEB SA, the maker of Tefal non-stick cookware, in a telephone interview. ``The recovery in investment isn't massive, and it's mostly to boost productivity, not capacity. We're being hurt big time by the rise in raw material prices.'' SEB, based in Ecully, France, said last month that profit dropped 43 percent in the first half as retailers in France reduced inventories and U.S. stores sought lower-priced products.
Central Bank
The European Central Bank held its benchmark lending rate at a six-decade low of 2 percent on Oct. 7 and investors have pared bets that the Frankfurt-based central bank will raise rates before March 2005. The yield on three-month Euribor interest future contracts for March settlement was 2.30 percent at 8:40 a.m. in Paris, compared with a 2.49 percent yield on Sept. 7. The Euribor contracts settle to the three-month euro-area inter-bank offered rate for the euro, which has averaged 15 basis points more than the ECB's key rate since the currency's start in 1999. The Euribor three-month money market rate was 2.15 percent. The euro region is lagging behind the U.S. and Asia. The IMF said on Sept. 29 that the U.S. will expand 3.5 percent next year after this year's 4.3 percent growth and Japan will grow 2.3 percent after 4.4 percent. The 12 nations sharing the euro will expand by 2.2 percent this year and next, the IMF forecast.
Higher oil prices are curbing profit at companies including PSA Peugeot Citroen, Europe's second-biggest carmaker. The Paris- based company expects rising commodity prices, including steel, to cut operating profit by about 80 million euros for the year, Chief Executive Jean-Martin Folz said last month at the Paris car show. Peugeot has total operating profit forecast of 2.2 billion euros. The increase in gasoline costs may limit the rebound in consumer spending, which has already been crimped by rising unemployment. Unemployment rose to 9.9 percent in August, matching a four-year high reached earlier this year. ///www.bloomberg.com