French economy pauses, but recovery still seen (strong EUR hurts manufacturing in France)
July 12, 2002 05:25 AM ET Email this article Printer friendly version
(Adds analysts' comments, paragraphs 17 and 22, Renault forecast paragraph 16)
By Joelle Diderich
PARIS, July 12 (Reuters) - French firms cut back output in May and inflation was subdued in June as the euro zone's second largest economy paused for breath, although economists were confident it would continue on the path of recovery.
National statistics office INSEE said on Friday that companies reduced overall production by 0.3 percent in May.
Industrial output excluding energy, food businesses and construction -- considered by INSEE the best measure of manufacturing output -- fell by 0.7 percent in May from April, the data showed.
That was sharply below forecasts by economists polled by Reuters, who had predicted overall industrial output would rise 0.2 percent in May while manufacturing production would increase 0.1 percent month-on-month.
INSEE also reported consumer prices were unchanged in June on a harmonised European Union basis, leaving the key inflation reference up 1.5 percent compared with the same month last year.
That was bang in line with forecasts, confirming expectations the European Central Bank would not raise interest rates until September at the earliest as a strong euro helped keep a lid on prices.
Economists said the drop in output was surprising after the strong performance of the last two months and jarred with INSEE's latest monthly industry survey, which showed business morale in May powered to its highest level in almost a year.
INSEE said the sharpest drops were in cars, down 2.0 percent month-on-month, and consumer goods, which fell 1.4 percent.
"It remains to be seen whether this is a one-off drop or whether it is a sign of a more prolonged slump," said Christian Parisot, economist at Aurel Leven.
"I am tempted to say at this stage that it is a one-off," he said. "The recovery phase is always a period of uncertainty and there are the occasional bad figures, but we continue to see a clear recovery in the French economy."
Analysts said the drop in May could be a technical correction, after INSEE revised the April rise to 0.5 percent from the 0.4 percent increase it originally reported.
Marc Touati, economist at Natexis Banques Populaires, noted overall output was up 1.3 percent in the three months to May versus the previous quarter, saying this confirmed his forecast that the economy would grow 0.7 percent in the second quarter.
Economists polled by Reuters expect the French economy to grow by 1.4 percent in 2002, roughly in line with government forecasts, although some believe growth could be as weak as 1.1 percent.
PRICES SUBDUED
However, industrial output could be dented in the last quarter by the recent appreciation of the euro, which makes French exports more expensive in dollar terms, even as it helps to keep a lid on prices by limiting the cost of petrol imports.
Data from the customs office on Friday showed France had a seasonally adjusted trade surplus in May of 2.138 billion euros ($1.79 billion), after a downwardly revised surplus of 1.319 billion euros in April.
Louis Schweitzer, chairman of the French carmaker Renault SA RENA.PA , said earlier this month he expected the European car market to shrink by around five percent this year, at the weak end of the company's previous forecast.
"Problems will come later as the effect of the dollar weakness will kick in. These effects should dampen industrial production at the end of this year," Stephane Deo, economist at UBS Warburg, said in a research note.
INSEE said a national measure showed French inflation fell 0.1 percent in June, putting the annual rate at 1.4 percent in June, mainly because oil prices were down 8.7 percent from peak levels of a year earlier.
France, which accounts for over a quarter of the euro zone's economy, has long had one of the lowest inflation rates in the 12-nation currency group.
"This is in line with expectations and confirms that there is no reason for a rise in European interest rates. Inflation in July should be stable too thanks to a sales effect and the limited rise in transport prices," said Touati.
The European Union's statistics office said in a preliminary estimate on June 28 that consumer prices across the euro zone remained subdued in June, rising just 1.7 percent, their slowest pace since December 1999.
Emmanuel Ferry, economist at Exane, said there was one cloud on the French inflation horizon. Underlying inflation was up 2.2 percent year-on-year in June and this could hamper consumer spending, which fell unexpectedly by 1.3 percent in May. |
