French Industrial Output Drops In May 2008

French industrial production dropped sharply in May - by the most in almost three years, adding to the accumulating evidence of a slowdwon in the eurozone economy. The output of French factories and utilities fell 2.6 percent from April, the biggest decline October 2005, according to the nation statistics office this morning. Output, rose a revised 1.5 percent in April over March and was up 0.7% year on year.

This heavy fall in French industrial output, coming on the back of the widening trade deficit, has reinforced the impression of a fairly sharp slowdown in GDP growth in the second quarter. Manufacturing output, which excludes food and energy, was down 2.5 percent in May over April.

The French customs office reported on Wednesday a widening of the country's trade deficit to 4.738 billion euros in May, well ahead of the consensus of 4.0 billion euros, as exports fell to 34.719 billion euros from 35.313 billion the month before.

Excluding the more volatile energy and automobile components, all other components fell in in May. Consumer and intermediate goods also showed a decline if you average the data for both April and May. The car sector output, which was down 8.0 percent in May, is one of the most volatile segments, but the very sharp decline is consistent with the idea of a strong slowdown in the sector.

If we add the industrial output reading to weakening consumer spending and the poor trade balance, it seems to be consistent with a picture of stagnating GDP growth in the second quarter,and even negative GDP growth quarter on quater cannot be entirely ruled out.