French Industrial Output Falls; Car Production Drops

By Helene Fouquet and Sandrine Rastello

Aug. 11 (Bloomberg) -- French industrial production, which accounts for 15 percent of the euro-area's second-largest economy, unexpectedly declined in June as car sales fell.

Output from factories and utilities decreased 0.4 percent from May, when it dropped 2.9 percent, Insee, the National Statistics Office in Paris, said today. Economists expected a gain of 0.6 percent, according to the median of 24 forecasts in a survey by Bloomberg News. In the year, output fell 1.6 percent.

Manufacturers are struggling with a stronger euro and rising energy costs at a time when an economic slowdown in the U.S. is damping global expansion. European Central Bank President Jean- Claude Trichet said last week that growth will be ``particularly weak'' through the third quarter.

``It's yet more bad news and more is probably to come given the worsening outlook for growth,'' Cyril Regnat, a strategist with Natixis SA in Paris, said on Bloomberg Television. ``This very bad figure is mostly explained by oil prices and the loss of confidence.''

The cost of crude has gained 63 percent in the past year and the euro has advanced 11 percent against the dollar. Sentiment among French manufacturers fell to the lowest in five years in June, the Bank of France said last month.

Growth is fading across Europe. Italy, the first of the three biggest economies in the euro region to report second-quarter gross domestic product, said its economy shrank, edging closer to the fourth recession in a decade.

Machines, Cars

Production of French consumer goods rose 0.5 percent in June and that of machinery and equipment slipped 1 percent, Insee said. Car manufacture fell 2.9 percent after a 7.6 percent drop in May. Construction expanded 0.7 percent.

French vehicle production plunged 7.1 percent in the first half as Renault SA cut capacity after its flagship Laguna mid- sized car missed sales targets. Output fell to 1.32 million vehicles from 1.42 million a year earlier, according to data published on July 31 by the French carmakers' association.

Michelin & Cie., the world's second-largest tiremaker, cut its full-year target on July 30 for the second time in three months after first-half profit fell on soaring oil, steel and rubber costs and a slump in European sales.

Crumbling Away

The French economy will grow 0.2 percent in the second quarter, the least in almost two years, before stagnating in the next three months, Insee said on June 20.

Still, French exports increased 0.6 percent to 34.9 billion euros ($53 billion) in June, with sales rising in Europe and Asia, the French Finance Ministry said on Aug. 7.

Alstom SA, the world's third-largest power plant maker, won contracts worth 6.55 billion euros through June, beating analysts' expectations of 5.98 billion euros.

Trade may get a boost from a depreciating euro. The common currency sank the most in almost eight years against the dollar on Aug. 8 as traders pared bets the ECB will raise interest rates.

The euro traded at $1.5021 at 12:20 p.m. in Paris after reaching a record $1.6038 on July 15. Oil prices have also receded, with Nymex crude futures 21 percent lower than the record $147.27 a barrel reached on July 11.

``The car industry may find some relief in the likely decrease in inflation in coming months, in the wake of receding commodity prices,'' Mathieu Kaiser, an economist at BNP Paribas SA in Paris, wrote in a note to investors today.

May's decline in industrial output drop was revised down from 2.6 percent, Insee said today.

To contact the reporters on this story: Helene Fouquet in Paris hfouquet1@bloomberg.net; Sandrine Rastello in Paris at srastello@bloomberg.net.