French, Italian Output Falls, Signaling EU Slump Is Deepening

By Sandrine Rastello and Lorenzo Totaro

Dec. 10 (Bloomberg) -- French and Italian industrial production fell more than expected in October, adding to evidence that the euro region’s first recession since the start of the single currency is deepening.

French manufacturing fell 3.2 percent, the most in 11 years, while total production dropped 2.7 percent from September, the Paris-based statistics office said today. Italian output declined 1.2 percent in the month. Economists surveyed by Bloomberg News forecast French and Italian production would drop 0.5 percent and 1 percent respectively.

The numbers are “the latest in a long string of disappointing data,” said Marco Annunziata, chief economist at UniCredit MIB in London. “Euro-zone GDP faces the sharpest contraction yet in the fourth quarter, as many corporations seem to have been wrong-footed by the speed of the collapse in domestic and external demand. It looks more and more like the euro zone is plunging into a deep and prolonged slump.”

The economy slipped into recession in the third quarter and the International Monetary Fund predicts the euro region will contract 0.5 percent next year as the world’s advanced economies suffer their first simultaneous recession in more than 60 years on the fallout of the U.S.-originated financial crisis. The European Union has proposed 200 billion euros ($258 billion) of measures to try to spur growth and the European Central Bank may be preparing further cuts in interest rates to fuel lending.

Confidence Slumping

Production in Germany also declined in the month and the Bundesbank forecast Dec. 5 that Europe’s biggest economy would shrink the most in 16 years in 2009. The dimming prospects for the region’s three largest economies contributed to European business and consumer confidence slipping to a 15-year low in November.

The global slowdown may worsen as China’s economy, an engine of growth over the past decade, starts to weaken. China’s exports fell for the first time in seven years in November, declining 2.2 percent from a year earlier, after gaining 19.2 percent in October, the customs bureau said today.

European manufacturing has been particularly hurt by plunging demand for durable goods such as cars. Western European vehicle sales plunged 25 percent in November, Carlos Ghosn, Renault SA chief executive officer, said last week, echoing forecasts by consulting firms J.D. Power and Global Insight. The French company is cutting 6,000 positions. Competitor PSA Peugeot Citroen plans to trim 3,550 jobs through voluntary departures.

Temporary Layoffs

Fiat SpA, the maker of the Punto and 500 car models, has been trimming production in Italy since September and plans to increase temporary layoffs to combat declining orders. The carmaker’s sales in Italy fell 29 percent in November, the 11th monthly decline.

“We’re going to slam the brakes on, use as many temporary layoffs as needed,” Fiat Chief Executive Officer Sergio Marchionne said in an interview with Automotive News Europe on Dec. 6. “I am going to have one week of production between now and the beginning of January. After that we’re in the dark because I have no idea what demand will be.”

The euro’s 12 percent slide against the dollar this year is failing to boost exports and the decline in oil prices hasn’t been enough to spur demand. Crude has fallen about 70 percent from its July record, cutting production costs and leaving consumers with more to spend.

ECB President Jean-Claude Trichet said Dec. 4 that “global and euro-area demand are likely to be dampened for a protracted period of time.”

The ECB cut its benchmark rate by an unprecedented 1.75 percentage points in the past two months to 2.5 percent.

To contact the reporters on this story: Sandrine Rastello in Paris at +33-1-5365-5052 or srastello@bloomberg.netLorenzo Totaro in London at +44-20-7330-7794 or ltotaro@bloomberg.net

To contact the editor responsible for this story: John Fraher at +44-20- 7673-2058 or jfraher@bloomberg.net