French industrial output, inflation weaker than expected

PARIS Thu Jul 10, 2014 8:56am BST

A worker walks past a gas turbine under construction at the gas turbines production unit of the General Electric plant in Belfort, June 24, 2014. REUTERS/Vincent Kessler

A worker walks past a gas turbine under construction at the gas turbines production unit of the General Electric plant in Belfort, June 24, 2014.

Credit: Reuters/Vincent Kessler

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PARIS (Reuters) - French industrial production plunged unexpectedly in May and inflation fell to its lowest level since the financial crisis in 2009 in fresh signs recovery is proving elusive for the euro zone's second-biggest economy.

The INSEE national statistics agency reported that industrial production plunged 1.7 percent in May from April, missing by a long-shot economists' expectations on average for an increase of 0.2 percent.

The slump adds to growing signs of weakness in core euro zone countries after Germany saw new industrial orders fall and trade fell short of expectations.

The weakness in French industrial production was broadly seen across the industrial sector although the drop was led by 8.4 percent plunge in refining and coke-making.

The economy is struggling to gain momentum after posting zero growth in the first three months of the year. The Bank of France estimated on Tuesday growth was only 0.2 percent in the second quarter but even that may be a stretch after the soft data.

With activity weak, there is little pressure on consumer prices, which rose only 0.6 percent year-on-year in June, short of economists' average estimate for 0.8 percent. It was the lowest level since November 2009 when France emerged from a brief bout of deflation in the financial crisis.

Excluding volatile prices, underlying inflation was only 0.1 percent over one year, returning to a record low also seen in January and highlighting that a great deal of slack remains in the economy.

Combined with weak business confidence surveys, the data indicate that recovery is struggling to take root even though the government has promised to phase out 30 billion euros (23.87 billion pounds) in payroll tax on companies in the next three years in an effort to stimulate growth.

The weak first half of the year raises the prospect that the economy will not grow the 1.0 percent the government forecasts, which could put its EU-agreed deficit-cutting targets at risk.

(Reporting by Leigh Thomas; Editing by Ingrid Melander)

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