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Last Updated: Friday, 11 July, 2003, 11:10 GMT 12:10 UK
Strikes weaken French economy
French strikers demonstrating
Mass strikes disrupted economic activity in May
French industrial production has dropped sharply following nationwide strikes over pensions reform last month.

France's official statistics agency said industrial output fell 1.4% in May, far outstripping analysts' forecast of a 0.1% decline.

The decrease was the steepest in almost two years, and followed a 0.8% decline in April.

Analysts said French companies' performance had stalled amid weak global growth, with mass strikes last month in protest against government proposals for pension reform putting businesses under further pressure.

"The level of industrial output is even worse than expected," said Maryse Pogodzinksi, economist at investment bank JP Morgan.

"However, it was a particularly bad month, with a series of strikes and public holidays disrupting activity."

Sluggish growth

The statistics agency also said inflation had risen by a steeper than expected 0.3% in June, partly fuelled by an increase in the price of fresh food in hot summer weather.

The figures have further darkened the outlook for the eurozone's second biggest economy, already struggling to fend off recession amid weak consumer spending and low business confidence.

Analysts now expect the French economy, which grew by a better than expected 0.3% in the first three months of the year, to stagnate in the April-to-June quarter.

The other big eurozone economies, Germany and Italy, are also experiencing sluggish growth.

Economists say the single currency area's difficulties partly reflect the strength of the euro, which has risen sharply against the dollar this year.

The strong euro has made eurozone exports more expensive and therefore less competitive in the global marketplace.

Euro speculation

Earlier this week, German Chancellor Gerhard Schroeder gave a newspaper interview that was widely interpreted as a veiled call for the European Central Bank (ECB) to help exporters by weakening the euro.

His remarks prompted a slight decline in the value of the euro on Friday, amid speculation that the ECB may buy dollars in an effort to drive the single currency lower.

But ECB chief economist Otmar Issing brushed aside suggestions that the bank should intervene in the currency markets, saying the eurozone economy "does not only depend on the exchange rate".

Economists added that there is currently no need to intervene because the euro has been retreating ever since it reached an all-time high against the dollar in late May.

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