• Annual output decline is biggest since November 2014
  • Confidence surveys suggest some pickup later in quarter

French industry entered the third quarter on a far weaker footing than anticipated, with production unexpectedly falling the most in three months.

The 0.8 percent plunge is in contrast to the 0.2 percent increase forecast by economists in a Bloomberg survey. In its report on Thursday, the statistics office said output also dropped 0.8 percent on an annual basis, the most since late 2014. Manufacturing output fell 1 percent on the month.

The data for July are the latest to suggest that France’s recovery is lagging that of its neighbors. Industrial production gained 0.7 percent in Germany and 0.6 percent in Spain during the same month.

“All the components of today’s numbers are negative -- something isn’t working,” said Francois Cabau, an economist at Barclays Plc in London. “We need to wait to see if this is borne out but it does highlight the downside risk to the third quarter.”

The figures follow a survey from Markit Economics that indicated manufacturing shrank for a second month in August. In the second quarter, France’s economy stagnated, lagging the 0.4 percent average growth across the 19-nation euro area.

While the drop in production in July points to a poor start to the current quarter, falling oil prices and a weaker euro may help spur the economy. Confidence surveys indicate there may be a pickup in the coming months, according to economists including Tullia Bucco at Unicredit.

Insee’s manufacturing confidence measure rose to 103 last month to match a four-year high. The Bank of France’s index of sentiment for manufacturing executives was unchanged at 98, pointing to a 0.3 percent increase in gross domestic product in the third quarter.

“There’s no real reason for this sudden change in direction and the summer months are often difficult to read, so we shouldn’t make a snap judgment,” Cabau said. “Yes, the PMI show deceleration but the Insee and Bank of France indexes are more complete and have consistently been more reliable.”

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