Weak French industrial output casts doubts on growth, German industry orders tumble

Wed May 7, 2014 6:12am EDT

Related Topics

* March French output data cast doubts on recovery hopes

* German industry suffers big drop in orders in same month

* French economic turnaround "is not for now" - analyst

By Ingrid Melander

PARIS, May 7 (Reuters) - French factories produced much less than expected in March while the country's trade deficit worsened, casting doubt on President Francois Hollande's latest predictions that the economy is finally turning around.

Coming after a first-quarter drop in consumer spending, the data released on Wednesday underlined the challenges facing the euro zone's second-largest economy.

Industrial output shrank for the first quarter overall as a rise in the manufacturing component was cancelled out by lower energy demand due to mild weather.

Hollande, the most unpopular French leader in decades, said at the weekend that the 2 trillion euro economy, bogged down by high unemployment and weak domestic demand, was on the way to turning around after stronger-than-expected 0.3 percent growth in the last quarter of 2013.

A solid turnaround is essential if France is going to keep promises to EU partners to bring its public deficit to within an EU-mandated target of 3 percent of output by 2015, down from 4.3 percent last year.

The 0.7 percent drop in French industrial output in March - a 0.3 percent fall over the first quarter - confounded the consensus forecast of analysts for a rise of 0.2 percent.

Industry in Germany has also been struggling, with orders falling 2.8 in March - the biggest drop in 1-1/2 years - as demand for German goods from around the euro zone slumped, partly on worries about the Ukraine crisis, data showed on Wednesday.

France's weak data reinforced expectations that GDP growth would be smaller there in the first quarter of 2014 than in the last quarter of 2013 and could even come in lower than some initial estimates.

"Industrial output, trade balance, GDP: the turnaround is not for now," Credit Agricole analyst Frederik Ducrozet wrote on Twitter. First-quarter GDP data will be announced on May 15.

Consumer spending, a key driver of the French economy, contracted by 1.2 percent in the first quarter, INSEE data showed last week.

A Reuters poll of analysts had forecast in mid-April that the French economy would grow by 0.1 percent in the first quarter, on par with INSEE's initial estimates and just below the Bank of France's 0.2 percent forecast.

"Industrial production is very disappointing, we are far below consensus and, with a few exceptions such as electronic appliances, all sectors are contracting, it's a real worry," said BNP economist Dominique Barbet.

France's March industrial output was also dragged down by low energy consumption after a mild winter, which led Barclays analyst Fabrice Montagne to say that first-quarter GDP growth could now come to 0.1 percent, below his earlier 0.2 percent estimate.

"French growth is also likely to contrast with stronger numbers in neighbouring countries such as Germany or Spain. GDP is then expected to rebound in Q2 towards the euro area average," he said. (Additional reporting by Jean-Baptiste Vey; Editing by Mark John and Hugh Lawson)

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