French Industrial Output Fell, Led by Car Production

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 fell in June, led by eroding car sales.

Output from factories and utilities decreased 0.4 percent from May, when it fell 2.9 percent, Insee, the National Statistics Office in Paris said today. Economists expected an increase of 0.6 percent, according to the median of 20 forecasts in a survey by Bloomberg News. In the year, output fell 1.6 percent.

Manufacturers, who are facing rising production costs from a 65 percent gain in the price of oil in the past year, are also feeling the pinch from a stronger euro at a time when an economic slowdown in the U.S. is hitting the rest of the world. The euro advanced as much as 9 percent against the dollar this year while oil prices have gained 22 percent since January.

``It's yet more bad news and more is probably to come given the worsening outlook for growth in France and in the euro region,'' said Cyril Regnat, a strategist with Natixis SA in Paris, in an interview on Bloomberg Television.

Production of French consumer goods rose 0.5 percent and equipment dropped 1 percent, Insee said. Cars slipped 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

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.

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 predicted on June 20. Karine Berger, the chief economist at Euler Hermes in Paris, said in an interview she doesn't expect that the economy grew in the second quarter and said the country should ``barely'' see any expansion in the third quarter.

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 growth shrank, edging closer to the fourth recession in a decade.

French Exports

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.

The European Central Bank last week kept the benchmark rate unchanged at 4.25 percent and President Jean-Claude Trichet said the bank remains focused on bringing down inflation even as the expansion will be ``particularly weak.''

May industrial output figures were revised lower from 2.6 percent, Insee said today.

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