* March French output data cast doubts on recovery hopes
* German industry orders post biggest drop in 1-1/2 years
* French economic turnaround "is not for now" - analyst
(Adds German data and analysis)
By Ingrid Melander and Madeline Chambers
PARIS/BERLIN, May 7 French factories produced
much less than expected in March while German industry orders
unexpectedly fell the most in 1-1/2 years, data showed on
Wednesday, feeding speculation of fresh European Central Bank
action to support the euro zone recovery.
France also reported a wider trade deficit, casting doubt on
President Francois Hollande's recent predictions that the bloc's
second-largest economy is finally turning around.
Coming after a first-quarter drop in consumer spending, the
0.7 percent drop in French industrial output in March underlined
the challenges facing the economy. Analysts had forecast a rise
of 0.2 percent.
German industry orders also confounded the consensus
forecast for a 0.3 percent rise, tumbling 2.8 percent as demand
for German capital and consumer goods from the euro zone
slumped, partly due to worries about the Ukraine crisis.
Still, some analysts said the outlook in Germany remained
bright despite the surprise drop.
Overall the data could give the ECB, which ends a policy
meeting on Thursday, another reason to eventually loosen
monetary policy alongside the strong euro, low inflation and
recent money-market tensions.
"The market was getting used to the idea that the ECB would
stay put this week. This kind of data is mixing the picture,"
said Jean-Francois Robin, head of strategy at Natixis.
French 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 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
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.
Market participants say there is very little chance of
immediate ECB action to support the euro zone economy, but most
believe a rate cut or some form of liquidity injection is likely
from next month. Some even argue a move to print money by buying
assets - so-called quantitative easing - could be on the cards.
'NO FRENCH TURNAROUND NOW'
Some analysts said the slump in German industry orders did
not threaten the outlook for Europe's largest economy and was
partly due to below-average large orders.
"The continued strong domestic orders show that the pickup
in Germany is supported largely by domestic demand and is
therefore less sensitive to swings in the global economy than in
previous decades," said Stefan Kipar of Bayern LB.
Others were worried by the sharp drop in orders from the
rest of the zone, however.
"The West's conflict with Russia may be unsettling companies
in Europe more than previously thought," said Thomas Gitzel,
chief economist at VP Bank.
"It is quite conceivable that the recovery in Germany and in
the euro zone loses momentum in the second half of the year," he
After growth of just 0.4 percent last year, the German
government predicts an expansion of 1.8 percent this year,
driven by domestic demand.
France's weak data reinforced expectations that GDP growth
would be smaller there in the first quarter than in the last
quarter of 2013, however, and could even come in lower than some
"Industrial output, trade balance, GDP: the turnaround is
not for now," Credit Agricole analyst Frederik Ducrozet wrote on
Twitter. French first-quarter GDP data is due out on May 15.
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
"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 Stephen Brown, Jean-Baptiste Vey and
John Geddie; Writing by Ingrid Melander and Annika Breidthardt;
Editing by Mark John and Hugh Lawson)