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French industry output drops, investment weak
PARIS, Nov 15 (Reuters) - French industrial output fell in September and industry chiefs expect investment to drop sharply this year, data showed on Friday, in the latest sign that recovery is faltering in the euro zone's second-biggest economy. Industrial production fell 0.3 percent month-on-month in September, dropping after a slight rise in August, a report from national statistics office INSEE showed. "I think it's in line with the notion that third quarter GDP (gross domestic product) will be soft,'' Deutsche Bank economist David Naude said of the output reading, which was below a consensus forecast from economists for no change from August. Industrial production excluding energy, agri-food businesses and construction -- considered by INSEE as a more precise gauge of manufacturing output -- fell 0.2 percent versus August. Economists had forecast a drop of 0.1 percent. "Clearly we have had a very short-lived recovery. This is the scenario of an aborted recovery,'' said Naude. Weakened demand is prompting businesses to cut spending. A survey of industry chiefs also conducted by INSEE showed they expect investment to slip seven percent in 2002, with a nine percent fall in investment in the manufacturing sector. The report showed the industry chiefs had grown more pessimistic. A similar survey published in May showed they forecast a two percent drop in industry investment this year, with a three percent fall in the manufacturing sector. "It (the weakened investment scenario) confirms the economic slowdown scenario for the second part of 2002,'' said Laure Maillard, economist at CDC Ixis investment house. The data came as French and European companies warn they face tougher than expected market conditions. European aerospace giant EADS abandoned a key profit target on Thursday and warned of a "double-dip'' commercial aerospace crisis. Budget pressureWeakened growth means tax receipts may fall below the forecast levels the government used for its 2003 budget. That would raise pressure on state finances just as the European Commission is threatening to send France an official warning that its public deficit risks breaching an EU limit. The government drew up next year's budget based on a forecast of growth reaching 2.5 percent in 2003 after 1.2 percent this year. Many economists believe next year's forecast is overly optimistic amid tepid global recovery. However, Finance Minister Francis Mer said on Thursday that the government plans to manage its spending next year "with one foot on the brake and one foot on the accelerator'' and may not spend all the money in its state budget. INSEE's survey of industry chiefs offered signs the French economic environment is set to improve next year. The executives expected industry investment to rise four percent in 2003. But economists played down the significance of the outlook. "It's a forecast. We have to bear in mind that they can be revised,'' said Deutsche Bank's Naude. Weakness in industry investment has been matched in France by waning consumer spending as households worry that businesses' troubles will result in higher unemployment. The industrial production data showed a 1.1 percent drop in car industry output in September -- a figure which came after recent data showed falling French car sales. Other data offered some upbeat news for French households, however, with INSEE reporting that non-farm payrolls rose a slight 0.2 percent in the third quarter to 15.47 million.
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