Italian, French Industrial Production Falls as Recession Looms

By Lorenzo Totaro

Nov. 10 (Bloomberg) -- Industrial production in France and Italy fell in September as signs that both economies are already in recession slammed their auto industries.

In France, the euro-area's second-largest economy, output dropped 0.5 percent from August, the Paris-based statistics office said today. Italy's industrial production fell 2.1 percent from August, the most in almost 10 years, said a separate report from the national statistics office in Rome.

Both economies contracted in the second quarter, hurting sales at manufacturers such as Fiat SpA and PSA Peugeot Citroen. Growth in both countries will lag behind the euro-area average this year, the European Commission forecast Nov. 3, as the credit crisis saps corporate borrowing and erodes consumer and business confidence.

France probably slipped into its first recession since 1993 in the third quarter, according to Insee, the national statistics office, and the Bank of Italy forecast that the Italian economy shrank last quarter after contracting 0.3 percent in the three months through June. Preliminary estimates for third-quarter gross domestic product for both countries will be released Nov. 14.

The decline in Italian and French output mirrored a drop in Germany, Europe's biggest economy, where production declined 3.6 percent in September, a Nov. 7 report showed.

Car Production

``The global environment is uncertain, the financial crisis is deepening and reaching the real economy,'' said Olivier Bizimana, an economist at Credit Agricole SA in Paris.

Output in both countries was hurt by slumping automobile sales. From a year earlier car production dropped 8.3 percent in France and 12.8 percent in Italy, today's reports showed.

Auto sales in Italy fell for a 10 month in October, the worst run since 1993, as concern about a recession and a reduction in government incentives to replace older models deterred buyers. The pace of the decline forced Italy's biggest manufacturer, Fiat, to suspend some production in Italy and temporarily lay off workers. The company may revise its financial goals for the first time since Chief Executive Sergio Marchionne brought the carmaker back to profit in 2005.

PSA Peugeot Citroen, Europe's second-biggest carmaker, cut its full-year earnings target and said production will be slashed 30 percent following a ``collapse'' in the global market. Renault SA closed its Sandouville plant in northern France for seven days because of weak sales of its Laguna mid- sized car and plans to seek 4,000 voluntary retirements in its program to cut costs.

``The economic crisis will hit not only the automakers, but also suppliers and dealers, which in Italy employ some 300 thousand people,'' Massimo Falcioni, director of the Italian unit of the world's largest credit insurer, Euler Hermes, said in an interview with Bloomberg Television on Nov. 6. ``We expect that the worst part of the crisis will be in the second quarter of 2009.''

To contact the reporter on this story: Lorenzo Totaro at in London or ltotaro@bloomberg.net