French industry output rebounds in July-UPDATE 1

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Friday September 10, 2010 02:03:09 PM GMT

* French output beats f'cast, lifted by surge in car output

* Makes up ground lost in June

* Output stronger than in Germany in 1st month of Q3 (Updates with economist comment, recent bank of France report)

PARIS, Sept 10 (Reuters) - French industrial output rose more than expected in July, driven by a surge in car production that helped make up ground lost in June and got the euro zone's second-largest economy off to a sounder start in the third quarter.

While economists said the news was encouraging, some said the pace was set to moderate given that global economic growth was losing steam and output would get less of a lift henceforth from rebuilding of previously depleted corporate inventories.

France's news follows a weaker than expected report from Germany this week, while Italian production also came in below forecasts. The three countries together account for more than three-quarters of the economy of the euro currency zone.

French statistics office INSEE said in a monthly report on Friday that overall industrial output rose 0.9 percent from June, when it had dropped 1.7 percent. Economists polled by Reuters had on average expected a 0.7 percent increase.

Manufacturing output, often seen as a more precise gauge of activity, rose 1.4 percent after a June drop that INSEE said it had revised to 1.2 from 1.3 percent.

Car production rebounded, rising 6.7 percent in July after a 6.5 percent monthly decline in June.

"This masks that an underlying slowdown is under way, as a moderation in global growth and a less positive stimulus from the inventory cycle are likely to make their presence felt," said ABN Amro economist Joost Beaumont.

"Nevertheless, growth in the sector is likely to remain solid."

France's central bank said this week that industry output held steady in August according to a business survey it conducts every month, and it said weakness in the auto industry was being offset by growth in other sectors.

The French report followed news on Wednesday that Germany's industrial output grew just 0.1 percent month-on-month in July, fuelling fears about growth there and across Europe after a strong second quarter.

Weak Italian industrial output data for July rounded out the picture. Output there rose 0.1 percent after a 0.5 percent rise in June month-on-month, well below a forecast for a 0.5 percent rise in July.

Euro zone gross domestic product growth rose a surprisingly strong 1.0 percent quarter-on-quarter in the April-June period, largely due to a German surge, after 0.3 percent in the first quarter.

But the OECD said on Thursday that growth in Europe and worldwide appeared to be slowing more sharply than it had previously expected and that more monetary stimulus might be needed to limit the extent of the deceleration. (Reporting by Brian Love; Editing by Hugh Lawson)

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