French Industrial Output Declines; Economy May Be in Recession

By Helene Fouquet

Oct. 10 (Bloomberg) -- French industrial production declined in August, further evidence that the second-largest economy of the 15 countries sharing the euro probably slipped into recession last quarter.

Output at French factories and utilities fell 0.4 percent from a revised 1.4 percent increase in July, the Paris-based statistics office said today. Economists expected French production to fall 0.8 percent, according to the median of 20 forecasts in a Bloomberg survey.

``We slipped from a slowdown to a recession in the course of the summer,'' said Jean-Louis Mourier, an economist with Aurel Leven in Paris. ``The fall is less than expected, but we are on a very negative trend now.''

The decline in production as well as in demand and confidence may worsen on the prospect that the global credit crisis may cause a worldwide recession. The national statistics institute Insee has said that France likely slipped into recession in the third quarter after the economy contracted in the three months through June. French manufacturing confidence, consumer spending and business confidence declined in August and September.

Confidence Slump

The economy of the euro zone contracted in the second quarter and the global credit crisis is pushing the region closer to recession as well. Confidence in the economic outlook for the euro area is the lowest since the Sept. 11 terrorist attacks in 2001, according to the European Commission.

The European Central Bank cut its benchmark interest rate in coordinated action with other central banks Oct. 8 to bolster global growth. French President Nicolas Sarkozy has called that move an ``excellent decision'' that ``will facilitate investment for individuals.''

Automakers also showed the decline in French production, with output slipping 0.4 percent in August from a month earlier, Insee said. Production of consumer goods fell 0.1 percent in the month. Household equipments production dropped 0.8 percent and agriculture and food production fell2.6 percent.

Year-on-year, industrial production fell 2.6 percent. Manufacturing production dropped 0.5 percent from a month earlier and it dropped 2.9 percent year-on-year.

Producers are starting to cut their stocks, cut investment and tightening their workforce. The climate really deteriorated in September,'' Mourier said.

Underestimated

Renault SA Chief Executive Officer Carlos Ghosn declined to reiterate sales and earnings targets for France's second-largest carmaker, saying on Oct. 2 that a slowdown in auto markets had been underestimated and may last two years. Renault plans to cut 6,000 jobs, or 4.6 percent of its global workforce, in a bid to meet the 2009 targets.

Valeo SA, France's second-largest auto-parts maker, cut its 2008 operating profit target, and says it is ``evaluating the consequences'' of a new environment, marked by ``brutal deterioration'' of production, to re-evaluate medium-term targets.

Cie. de Saint-Gobain SA, Europe's biggest supplier of building materials, said in July it would cut 4,000 jobs this year to weather a construction slowdown.

Insee reported on Oct. 3 that gross domestic product probably shrank 0.1 percent in the third quarter after a contraction of 0.3 percent in the three months through June. The economy will also shrink 0.1 percent in the final three months to cut growth to 0.9 percent for the full year, the slowest pace since 1993, Insee said.

``The French economy continues to be hurt,'' Insee's chief forecaster Eric Dubois said. The current credit crisis ``is an important risk.''

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