French January Production Declines, Trade Gap Widens

By Francois de Beaupuy and Simon Kennedy

March 10 (Bloomberg) -- French industrial production tumbled for a fifth month and the trade deficit grew in January as the deepening recession and rising unemployment damped demand.

Output at factories and utilities fell 3.1 percent from the previous month when production declined a revised 1.5 percent, Insee, the Paris-based statistics office, said today. The trade gap swelled to 4.5 billion euros from a revised 3 billion euros in December, the Trade Ministry said in a separate report.

“The return of hope won’t happen until activity progressively improves, which won’t take place for at least six months,” said Marc Touati, chief economist at Global Equities in Paris.

The French economy will shrink 1.5 percent this year, the worst contraction since World War II, leading to a loss of at least 350,000 jobs and a jump in the budget deficit, Finance Minister Christine Lagarde predicted last week. The global credit crisis has sapped lending and consumer confidence, slamming the country’s largest manufacturers.

The value of French goods exported in January dropped to the lowest since March 2005, led by weaker demand for planes, ships, appliances, electronic equipment, metals and chemicals, the trade report showed. Imports fell to the lowest since October 2005.

Economists polled by Bloomberg expected a drop of 0.6 percent in industrial production and a trade deficit of 3 billion euros, according to the median forecasts.

Entering Recession

French manufacturing production, which excludes energy and food output, dropped 4.1 percent from the previous month and 16.5 percent from a year earlier, Insee said. Industrial production fell 13.8 percent in January from a year ago, Insee said.

The French economy, the second-largest among the nations using the euro, will shrink 0.6 percent in the three months through March, the Paris-based central bank estimated yesterday. That would mark the country’s official entry into a recession, following a 1.2 contraction in the fourth quarter.

To combat the slump, President Nicolas Sarkozy’s government is injecting funds into banks and helping them raise cash to lend to companies and households. In December, he introduced a 26 billion-euro economic-stimulus package to spur construction, investment infrastructure, hiring at small companies and purchases of new cars. So far, the incentives have done little to lift demand for autos. Car and light-truck sales declined 15 percent in February from a year earlier, a March 2 report showed.

Auto Aid

In February, the government announced aid to the car industry, including 6 billion euros in loans for PSA Peugeot Citroen and Renault SA after a plunge in car sales forced them to trim production. He also announced 2.6 billion euros in help for low earners and the unemployed, and pledged 8 billion euros of tax cuts for manufacturers next year.

French December industrial production was revised from a decline of 1.8 percent and the trade gap for the same month was from an originally reported shortfall of 2.5 billion euros.

To contact the reporter on this story: Francois de Beaupuy in Brussels at fdebeaupuy@bloomberg.net.