May 11 (Bloomberg) -- Industrial production in France, Europe's third-largest economy, dropped in March and fell more than initially estimated in February, adding to signs of a slowdown across the region.

Output by French factories, utilities and mines declined 0.5 percent from February, when it slipped a revised 0.6 percent, Paris-based statistics office Insee said today. Economists had expected a 0.2 percent slide in March, according to the median of 26 estimates in a Bloomberg survey.

A 27 percent gain in oil prices this year is crimping corporate profits and leaving households with less money to spend. French business confidence dropped to the lowest in 18 months in April as companies including Lafarge SA, the world's largest cement maker, reported faltering European sales.

``Momentum is turning more negative,'' said Emmanuel Ferry, a senior economist at Paris-based Exane BNP Paribas SA, who is considering cutting his 2005 growth estimate for France to 1.5 percent from 1.7 percent. ``The threat of recession may re-emerge in the second quarter.''

February industrial output was revised from a previously reported drop of 0.5 percent. Production was unchanged in the first quarter from the previous three months.

Manufacturing output fell 0.9 percent in March after a 1.2 percent drop in the previous month, today's report showed. Factory production in the quarter fell 0.3 percent from the October- December period.

Recession Risk

The economy of the 12 nations sharing the euro may struggle to grow in the second quarter, reports from the past month indicate. Manufacturing in the region contracted for the first time in almost two years in April and growth in the services industry slowed. In Germany, Europe's biggest economy, industrial production fell for a second month in March.

``The focus over the coming weeks will be to measure the pass- through effects from the weakness in the manufacturing sector to the rest of the economy in order to assess the risk of any pending new recession in the euro area,'' said Frederic Pretet, an economist at Calyon, the securities unit of Credit Agricole SA.

France's economy, which contributed the most to euro region growth last year, probably expanded at less than half the fourth quarter's pace in the first three months of 2005, or 0.4 percent, the Bank of France said April 14. In the current quarter, growth may reach 0.5 percent, the bank predicts.

Protest Vote

A jobless rate of 10.2 percent, the highest since 1999, and the slowing economy are hampering President Jacques Chirac's campaign to win support for a new European constitution in a May 29 referendum. An Ipsos SA poll May 9 showed voters split 50-50.

``It's a protest vote and reflects the mediocre labor market and the low level of consumer confidence,'' Exane BNP's Ferry said. ``That's why it will be a close call.''

Paris-based Lafarge said May 4 that first-quarter sales rose 2.2 percent as gains in the U.S. outweighed a slowdown in Europe. For Schneider Electric SA, the world's biggest maker of circuit breakers, first-quarter sales in Europe climbed 2.2 percent, compared with 14 percent in North America.

The price of a barrel of Brent crude climbed to a record $57.65 on April 4, adding costs for companies already suffering from an 8.4 increase in the euro against the dollar the past year. Oil prices have slid 11 percent from their record.

Rising oil prices are among the main risks to global growth, European Central Bank President Jean-Claude Trichet said after chairing a meeting of the Group of 10 nations in Basel, Switzerland on May 9.

``Growth this year is at a global level lower than in the previous year and certainly the price of oil has played a role,'' Trichet said at a briefing after the G-10 meeting.

Italian Decline

The European Commission on April 4 cut its 2005 growth estimate for the euro region to 1.6 percent from 2 percent, citing the effect of surging energy costs and fragile consumer demand. France will probably grow 2 percent instead of 2.2 percent, the commission forecast.

In Italy, industrial production probably fell for the first time in three months in March, a report by Rome-based national statistics office Istat is expected to show tomorrow, according to the median estimate of 30 economists in a Bloomberg survey.

Slowing economic growth in the U.S., the world's largest economy, has also clouded the outlook for European exporters. The U.S. economy grew at the weakest pace in two years in the first quarter, a government report showed April 30.

Mounting evidence of a slowing expansion in the euro region has prompted investors to all but abandon expectations for a rate increase by the ECB this year. The central bank has left its benchmark rate unchanged at 2 percent since June 2003.

The implied rate on the December Euribor futures contract was at 2.16 percent today from 2.61 percent at the start of the year. The contracts settle to the three-month euro area inter-bank offered rate, which has averaged 15 basis points more than the ECB's main rate since the euro's start in 1999.

To contact the reporter on this story: Simone Meier in Paris at smeier@bloomberg.net

Last Updated: May 11, 2005 02:45 EDT