French June output rise does not signal start of economic rebound: analysts

PARIS, Aug 12 (AFP) - The French economy either stagnated or contracted in the second quarter, analysts predicted Tuesday based on the publication of weak official industrial production and inflation data.

Days after Italy announced it was the first European country to remain in recession for the first half of the year, France, the world's fifth-largest economy, appeared set to add to the gloom in Europe when it publishes second-quarter economic growth figures next week.

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Analysts were also expecting Germany to announce Thursday that the euro zone's biggest economy had remained mired in recession for a third straight quarter.

Economists discounted a strong June rebound in French industrial output, saying it was largely the result of exceptional factors and therefore does not signal the beginnings of a recovery in economic activity.

Total industrial output rose 1.2 percent from May, the national statistics institute INSEE reported, using seasonally adjusted figures, after falling 1.3 percent in May.

The June figure was the strongest rise since August 2001, compared with economists' forecasts for a rise of 0.7 percent.

But economists said the rise was largely the result of a sharp increase in energy production, which rose 4.0 percent on the month.

"Almost half of the June rise in industrial output can be put down to energy production," said Jean-Marc Lucas of BNP Paribas. "The increase in manufacturing output was much more modest, which shows that the fundamental trend in output remains weak."

Manufacturing production -- defined as industrial production minus energy and agricultural production -- rose 0.6 percent from May, compared with market expectations for a 0.3-percent increase. It had fallen 1.7 percent in May.

The June increases in both industrial and manufacturing output also partly represented a correction of sharp falls in May, when strikes and public holidays dampened activity, economists said.

Over the second quarter as a whole, industrial activity was therefore weak, with industrial production falling 1.1 percent and manufacturing output declining 0.7 percent from the first quarter.

The sharp quarterly contraction confirmed poor outlooks for growth in gross domestic product (GDP), economists said.

Nicolas Sobczak of Goldman Sachs and Laure Maillard of CDC Ixis forecast the French economy contracted in the second quarter, after rising 0.3 percent in the first quarter.

Sobczak said GDP was expected to shrink by 0.2 percent, while Maillard forecast a 0.1-percent contraction.

"Unfortunately, the June rebound in industrial activity does not remove the threats to the French economy," said Alexandre Bourgeois of Natexis Banques Populaires.

Jan-Eric Fillieule of CCF said industrial production remains very fragile, with output of both capital goods and intermediate goods falling for the fourth consecutive quarter.

"In the second quarter, production declined in every industrial sector, the weakest overall performance since the end of 2001," said BNP Paribas' Lucas. "These results point towards a stagnation of GDP in the second quarter."

Bourgeois of Natexis Banques Populaires agreed that GDP was now likely to be flat in the second quarter.

"The second-quarter national accounts, which will be published on August 20, will not contain any good news. The best that can be expected is a stagnation in activity," he said.

In a separate report indicating weak demand from consumers, a traditional pillar of the economy, INSEE said consumer prices fell 0.1 percent in July from June, when they rose 0.2 percent.

BNP Paribas' Lucas noted that underlying inflation had fallen to 1.3 percent in July, a one and a half year low.

"This trend underscores the effect of weak demand on the power of businesses to set prices," he said.

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