French industry slumps; Noyer echoes Hollande on growth

Tue Jul 10, 2012 9:07am EDT

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(Reuters) - France's industrial output slumped in May, adding to signs the economy struggled in the second quarter of the year, as the head of the country's central bank joined its president in urging reforms to drive a return to sustainable growth.

Overall production fell 1.9 percent compared with April, national statistics agency INSEE said on Tuesday - far worse than a Reuters forecast for a drop of 0.9 percent.

The data supported downbeat growth forecast issued on Monday by President Francois Hollande, who said the economy likely flatlined in the first half of 2012, and by the central bank, which predicted a decline of 0.1 percent in the second quarter.

Speaking at a presentation of the bank's annual report, its governor Christian Noyer said on Tuesday the debt crisis had pinpointed the need for durable structural reforms.

"France in particular must pursue its fiscal consolidation (and) improve its competitiveness, notably through comprehensive reforms of goods, services and labor markets," he said.

Speaking on Monday at a conference on industrial relations, Hollande also highlighted France's soaring jobless rate, which rose for a thirteenth straight month in April to hit its highest since August 1999.

A high rate of expansion was needed to bring down unemployment and "we need to do everything we can to generate lasting growth for the years ahead," the president said.

Tuesday's data showed manufacturing output also slumped by 1.0 percent, with falls in all segments, from electronics and textiles to transport, underlining how much demand is flagging as business confidence wanes and firms step up job cuts.

NO CONFIDENCE

While the euro zone debt crisis undermines economic confidence around the globe, swathes of recent data have pointed overwhelmingly to a slowdown in economic activity in France.

June PMI data last week suggested gross domestic product probably shrank in the second quarter, while business confidence in the dominant services sector fell to its lowest in over three years.

The latest unemployment data also showed the pace of job losses accelerating over April, echoing the sharp deterioration that followed the 2008 global financial crisis.

With the single currency region teetering on the brink of recession, euro zone leaders agreed at the end of June to push for closer banking union and allow their ESM rescue fund to buy government bonds on the market and directly recapitalize banks.

But there are significant implementation risks.

"Until the European authorities can stabilize the euro zone crisis with deeper fiscal and banking integration, uncertainty will remain high and push down the investment outlook," said HSBC economist Mathilde Lemoine.

In the meantime, Noyer said, countries need to push ahead with efforts to close competitiveness gaps within the region, which are behind variations in rates of economic growth and large fiscal imbalances.

"The negative effects of the crisis (can) only be offset by the implementation of ambitious structural reforms," Noyer said.

Elected in May promising to avoid the painful bouts of austerity that have multiplied across other parts of Europe, Hollande will hope to address some of Noyer's concerns this week.

The conference he has convened in Paris will discuss ways to tackle France's rigid employment laws to help bring down the cost of labor, bring the country closer into line with economic powerhouse Germany over time and boost growth.

(Additional reporting by Leigh Thomas; Editing by John Stonestreet)

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