* Surprise drop suggests pace of economic recovery is feeble
* Peugeot chief sounds positive note despite industry's woes
* Latest data comes as government prepares to unveil 2014
By Brian Love
PARIS, Sept 10 French industrial output
unexpectedly fell in July as oil and coke refining and car
production shrank, confounding forecasts for the euro zone's
second-biggest economy to make a solid start to the third
The data suggests the economy is still fragile after pulling
out of recession in the second quarter, adding to the challenge
facing President Francois Hollande's government as it puts the
final touches to a 2014 budget that must cut debt without
killing nascent economic recovery.
Industrial output fell 0.6 percent in July from June,
seasonally adjusted, the INSEE statistics office said on
Tuesday. Oil and coke refining fell 6.7 percent on the month,
while car production dropped 11.2 percent, pointing to a
deepening slump in the sector after a 7.4 percent decline in
A Reuters poll had forecast a 0.6 percent increase in
industrial output in July, after a 1.4 percent decline in June.
"Today's report shows a weaker-than-expected entry of
industrial production into the third quarter," said Tullia
Bucco, an economist at UniCredit bank.
The French central bank raised its growth forecast for this
quarter slightly on Monday to 0.2 percent, quarter-on-quarter,
following a recent improvement in economic data.
Bucco, however, said she expects quarterly growth will slow
to 0.1 percent in the July-September quarter after a 0.5 percent
rise in the second quarter.
Finance Minister Pierre Moscovici, whose 2014 budget bill is
due to be unveiled on Sept. 25, said on Tuesday that he hoped
signs of a broader recovery in Europe would help France meet or
beat the government's growth forecast of 0.1 percent this year.
"The (growth) number of 0.1 pct seems to me to be a very
cautious estimate to work with in 2013. For 2014, we want to
build on the recovery in France to make it sustainable,"
Moscovici told a seminar at the finance ministry. "France has
everything it needs for that with the euro zone doing better as
it recovers, and with the pillars of domestic demand solid."
Struggling carmaker PSA Peugeot Citroen sounded a
more upbeat note on the outlook for the car sector, saying
renewed weakness in European sales during the traditionally
slack summer vacation period of August, did not appear to have
"For the moment our September orders are at a similar level
to last year," Chief Executive Philippe Varin told reporters at
the Frankfurt auto show.
(Additional reporting by John Irish and Leigh Thomas in Paris,
and Laurence Frost in Frankfurt; Editing by Susan Fenton)