French Industrial Output Tumbles as Recession Looms

French industrial production fell more than expected in January as Europe’s second-largest economy teetered on the brink of its third recession in four years.

Output from factories, mines and utilities fell 1.2 percent in the month from December, national statistics office Insee said today. Economists had expected a 0.2 percent drop, according the median 25 estimates in a Bloomberg survey.

The decline underlines difficulty President Francois Hollande faces in trying to revive an economy that fell back into recession early last year and shrank again in the fourth quarter. Factory output fell 1.4 percent in January and 4.6 percent in the three months through January, led by a slump in car production.

“France remains stuck in a recessionary mode,” said Philippe Gudin, an economist at Barclays in Paris. “The unemployment rate is flirting with historical highs and household income is hit by higher taxes. The stabilization we had expected from the beginning of 2013 does not seem to have taken place.”

Stocks Fall

European stocks fell from a 4 1/2-year high today. The Stoxx Europe 600 Index dropped as much as 0.5 percent, while Standard & Poor’s 500 futures slipped 0.2 percent.

French car makers PSA Peugeot Citroen SA and Renault SA are cutting tens of thousands of jobs to meet a shrinking European car market, while companies such as telecommunications equipment maker Alcatel-Lucent and drug maker Sanofi SA are also slashing staff. Unemployment climbed to a 13-year high of 10.6 percent in the fourth quarter.

That’s weighing on domestic demand and tax receipts at a time when Hollande is struggling to cut France’s budget deficit, ease labor costs and improve job market flexibility.

Even so, the global economic recovery may be starting to help manufacturers. Sentiment among manufacturing executives climbed for a third month in February, the Bank of France said last week. The central bank’s services index, which is more closely correlated with domestic demand, fell.

‘Past Trough’

“Should industrial production stabilize at the January level in February and March, it would fall by materially less than in the fourth quarter” adding to the sense that French industry is “past its trough,” said Gilles Moec, an economist at Deutsche Bank in London.

In neighboring Germany, exports rose more than economists forecast in January, according to a report published by the Federal Statistics Office in Wiesbaden today. Seasonally adjusted exports advanced 1.4 percent from December, while economists expected a 0.5 percent gain, according to a Bloomberg survey.

While the German economy shrank 0.6 percent in the final three months of last year, the Bundesbank predicts it will rebound in the current quarter. Confidence among investors and businesses jumped in February and retail sales rose the most more than six years in January. Still, factory orders unexpectedly fell and industrial production stagnated.

“Very hesitantly, hard data is reflecting the strong rebound in sentiment surveys,” said Christian Schulz, senior economist at Berenberg Bank in London. “The economy is rebounding from the sharp contraction, but the extent of the rebound remains subject to some uncertainty.”

The European Central Bank last week cut its forecasts and now expects the euro-area economy, Germany’s biggest export market, to shrink 0.5 percent this year before growing by 1 percent in 2014. The German economy will expand 0.4 percent this year, according to the Bundesbank.