French firms slash production

Sinking car sales are part of the problem

Fears of renewed recession in Europe have been stoked by news that French firms have turned in their worst monthly performance for five years.

Output from French factories was 1.7% lower in December than the month before, French statistics agency INSEE announced.

Recession is a bigger threat than ever

Adolf Rosenstock, economist Nomura

Economists had forecast a much slimmer slowdown, of about 0.3% on average, although some feared it could reach 1%.

The decline stemmed from a slowdown in the production of car, healthcare and beauty products, INSEE said.

Europe on the skids

Coming on top of equally dire numbers for German industrial production, the fear is that the tentative economic recovery in Europe is over.

"Certainly core Europe is close to recession if not already in one," said Adolf Rosenstock, economist at Nomura International in Frankfurt.

"Hopes of recovery are very much confounded... instead of improving, we are going down, and recession is a bigger threat than ever."

The weakness of the world market, beset by fears about impending war in Iraq, is hurting export businesses in France as much as elsewhere.

And with two thirds of French exports heading for Europe rather than further afield, weakness in the eurozone is hammering performance.

Up against the limit

The figures will do little to relieve fears that France could join Germany in breaching eurozone rules limiting budget deficits to 3% of gross domestic product.

Falling tax receipts mean France could have technically hit the wall already, the government admitted a week ago, as it promised to cut spending to compensate.

Germany, meanwhile, is insisting it is still inside the limit - although Chancellor Gerhard Schroeder said on Wednesday that a long war in Iraq would probably make the ceiling impossible to obey.