French Industrial Output Slumps as Italy Posts Surprise Gain

10.02.2012 13:30

WSJ: French industrial production posted a marked contraction in December, the central statistics bureau said Friday, suggesting the euro zone's second-largest economy nose-dived at the end of last year, even as Italy's industrial output showed a surprise jump.

French industrial output slumped 1.4% on the month, the worst data since September, the central statistics bureau, or Insee, said Friday, much more than the 0.8% contraction forecast by economists polled by Dow Jones Newswires.

The broad-based decline confirms that the French industrial sector went through a delicate time in December as investors were paralyzed by uncertainty on the financial markets and fears that France would lose its top notch triple-A credit rating, which finally occurred last month.

With presidential elections less than three months away, strategies to retain industrial jobs in the country have become a crucial area of confrontation between politicians.

Still, the situation has improved, and France is now on its way out of the soft patch, said Bank of France governor Christian Noyer Friday, ruling out fears of a recession.

"We're not in a soft recession, we're on a plateau," Mr. Noyer said in an interview on Europe 1 radio. "We're seeing signs that we're on the point of taking off again."

Fears of a generalized loss of competitiveness on the world's markets were compounded earlier this week by the worst foreign trade data France has ever posted. The country's headline-grabbing €69.6 billion deficit for 2011 followed reports that 880 factories had shut down in the country since 2008, with over 100,000 industrial jobs lost.

To redress the situation, French President Nicolas Sarkozy has said he will attempt to increase value added tax, which is similar to U.S. sales tax, to fund a cut in payroll taxes paid by employers. The aim is to make France more competitive, as Mr. Sarkozy counts on businesses using the breathing space the cut would provide to reduce their prices.

But critics say the measure would hurt consumer spending, which is already suffering. For the whole of 2011, French households' spending, which represents well over half of gross domestic product in France, fell 0.5% from the previous year.

The streak of bad news has forced the government to slash its growth forecast for this year by half to 0.5% for 2012, instead of the 1% expansion previously expected.

Some analysts say a turn-around isn't likely any time soon, with industrial production set to rem.

Industrial production, for one, will continue to suffer.

"We do not expect a rebound in January," Dominique Barbet, a BNP Paribas economist, wrote in a note. "February industrial production may look better thanks to strong electricity production, but manufacturing output should remain weak, especially in the auto sector."

Meanwhile, Italian industrial output posted a surprise jump in December, led by the transportation and chemicals sectors, national statistics office Istat said Friday.

Italian industrial production rose 1.4% in December from November on a seasonally adjusted basis, Istat said, against expectations for a monthly drop of 0.5% according to a Dow Jones Newswires poll.

The December surge meant that on an annualized basis industrial output fell 1.7% from December 2010 in workday-adjusted terms, Istat said. Expectations were for a 4.6% drop.

Capital goods output rose 3.6% from November, accounting for all of the growth during the month, Istat said. Production of vehicles rose 4.4% in December from November, while the chemicals sector boosted output by 3.9% in the month.

Elsewhere, the output of Irish manufacturing plants rose 3.5% in December from the previous month, but was down 4.1% from December 2010, according to government data published Friday.

—Christopher Emsden and Liam Moloney in Rome and Eamon Quinn in Dublin contributed to this article.
Write to Gabriele Parussini