French output falls unexpectedly

PARIS, France -- French industrial production, the main engine driving the eurozone's second largest economy, fell unexpectedly in July as the long-anticipated global recovery continues to falter.

Overall output dropped by 1 percent after increasing by a revised 0.3 percent in June, the French national statistics office INSEE said on Wednesday. The narrower measure of industrial activity -- excluding the energy, food and construction sector -- also fell by 1 percent in July.

Economists polled by Reuters had forecast a rise of 0.2 percent in overall output and little or no change in industrial production.

The biggest production declines came in the manufacturing sector, which accounts for one-quarter of France's output. The the rest coming from the services sector.

The July figures come just one day after U.S. data showed a surprise fall in industrial production in the world's biggest economy and similar declines reported earlier this month in Germany, the largest economy in the 12-nation eurozone.

"The French numbers are very disappointing and unexpected,'' Nathalie Fillet, BNP Paribas bond strategist, told Reuters.

"All-in-all, the data confirms the idea of weak economic numbers in Europe and markets will expect the European Central Bank to do something,'' she said.

Marc Touati, an economist at Natexis Banques Populaires, added: "All this puts French growth in jeopardy.''

The ECB is scheduled to meet on October 3 for its monthly monetary policy meeting. The central bank has left its key lending rate unchanged at 3.25 percent since November as the eurozone struggles to recover from last year's economic downturn.

Economists say the ECB -- which cut rates four times in 2001 -- will need to reduce borrowing costs again in order to revive the eurozone economy.

Like France, Germany's industrial output also fell by 1 percent in July from the previous month, according to Finance Ministry data released earlier this month.

On Tuesday, the Federal Reserve reported that industrial production in the United States fell unexpectedly by 0.3 percent in August -- the first monthly decline this year.

Both France and Germany have experience sluggish growth this year and forecasts for the remainder of the year have been revised downward.

The overall eurozone economy has also been slowing, with the growth of between 0.3 and 0.6 percent in the third quarter.

The U.S. economy -- which along with Japan and Germany, fell into recession in 2001 -- is expected to expand by between 3.5 and 3.75 percent this year and by 3.5 to percent in 2003.