France factory output drops sharply in June

French factory activity fell into a hole in June, but some economists were relatively sanguine regarding the prospects for the euro area´s second largest economy.

Industrial output shrank by 0.8% month-on-month in June, according to INSEE, in the process undershooting economists´ forecast for a rise of 0.1% by a wide margin.

That marked the second consecutive monthly decline, led by manufacturing output which fell by an outsized 1.2% over the month amid decreasing output in all the main categories, save food.

Energy production was execptionally weak, declining by 12.4% month-on-month because of strikes at refineries, in protest over new labour laws, which even forced the closure of one installation, Francois Cabau at Barclays Research pointed out.

That subtracted one tenth of a percentage point from the rate of growth in manufacturing.

Nonetheless, French industrial production fell by only 0.1% quarter-on-quarter over the three months to June, marking somewhat of an improvement versus the 0.5% drop seen in the course of the previous three months.

On a more cautious note, Cabau added: "we nonetheless note that intermediate goods output has declined over the past four months, while investment goods have been only moderately up, evidencing the fragility of the recovery – also evidenced by volatile GDP growth prints."

French gross domestic product was estimated to have flatlined during the second quarter - amid flat household spending and shrinking investment and falling exports - according to estimates released by INSEE on 29 July, but Cabau anticipated a recovery in the following quarter.

"Business confidence has remained resilient so far in July in the wake of Brexit, and disruptions owing to labour law strikes (and floods) are unlikely to repeat in the third quarter."