U.K., French Industrial Production Falls, Worsening Recession

U.K., French Industrial Production Falls, Worsening Recession
By Simon Kennedy and Brian Swint

March 10 (Bloomberg) -- Industrial production plunged in the U.K. and France in January, threatening to push Europe into a deeper recession.
U.K. factory output fell 2.9 percent from December and 6.4 percent in the three months through January, the most in at least four decades. French industrial production sank 3.1 percent on the month, five times the pace predicted by economists, and 13.8 percent from a year earlier.
Companies from IMI Plc to Valeo SA are being ravaged by the global economic crisis as demand slumps and credit remains tight. With the worst recession since World War II driving up unemployment, the European Central Bank and Bank of England are under mounting pressure to keep easing monetary policy.
“Manufacturing is being very hard hit and there’s little prospect of a turnaround,” said Collin Ellis, European economist at Daiwa Securities SMBC Europe Ltd. in London. “The data raises fresh questions about the severity of the European downturn.”
British manufacturing has now dropped for 11 months, the worst streak of contraction since 1980, when Margaret Thatcher was prime minister. Factory production accounts for about 15 percent of the economy, compared with about 75 percent for services and 6 percent for construction.
“This is unbelievably grim,” Alan Clarke, a London-based economist at BNP Paribas SA, said in an interview. “There’s no sign of the slowdown abating. The Bank of England will probably need to do more.”
Out of 13 categories of manufacturing, nine fell and four rose on the month, the statistics office said. Transport equipment, electrical, optical goods, and machinery and equipment led the declines. Production of motor vehicles and auto parts drove the slump in the transport category, the data showed.

Car Sales
European car production will probably fall 25 percent and sales are likely to drop 20 percent this year, the European Automobile Manufacturers Association said on March 5.
Separate reports today showed the French trade deficit swelled in January as the value of exports fell to the lowest in almost four years, while German shipments slid for the fourth straight month by declining 4.4 percent on the month.
“The pace of contraction remains extremely strong” in France, said Frederique Cerisier, an economist at BNP Paribas in Paris. The figures may prompt him to further downgrade his forecast that the economy will contract 2.3 percent this year.
To combat the slump, President Nicolas Sarkozy’s government is injecting funds into banks and helping them raise cash to lend to companies and households. In December, he introduced a 26 billion-euro ($33 billion) economic-stimulus package to spur construction.

U.K. Aid Package
U.K. Trade Minister Ian Pearson will set out how a 2.3 billion-pound ($3.2 billion) aid package for automakers will work and which companies will be eligible when he meets executives tomorrow. The government is considering separate help for General Motors Corp.’s Vauxhall unit.
The European Central Bank last week cut its benchmark to a record low of 1.5 percent, while its U.K. counterpart lowered its to a record 0.5 percent and took the unprecedented step of printing money to buy assets and replenish bank balance sheets.
IMI Plc, the world’s biggest maker of pneumatic controls, said last week it reduced its global workforce by 10 percent and plans further reductions in the coming weeks. Valeo SA, France’s second-largest auto-parts maker, has temporarily shuttered plants.
To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net. To contact the reporter on this story: Simon Kennedy in Paris at Skennedy4@bloomberg.net. Last Updated: March 10, 2009 08:32 EDT

http://www.bloomberg.com/apps/news?pid=20601102&refer=uk&sid=aUvgE0D.somI