France’s economic recovery appears to be flagging after industrial production plunged in June, in stark contrast to a resurgent Germany.

Industrial output fell by 1.7 per cent, according to figures published on Tuesday by Insee, the national statistical agency. The decline was much larger than analysts expected, and wipes out most of May’s strong increase, which was revised up to 1.9 per cent.

Over all, French industrial output rose by only 0.8 per cent during the second quarter, well behind the German economy, which recorded a 5.4 per cent surge in industrial production from April to June.

The fall in French auto industry output, down 7.4 per cent in June, was the main contributing factor. “The phasing out of the car scrappage scheme is clearly taking its toll,” said Gilles Moec, economist at Deutsche Bank.

Analysts said the disappointing output figures meant their predictions for second-quarter gross domestic product growth due on Friday could prove optimistic.

Barclays Capital and BNP Paribas had predicted growth of 0.5 per cent, while Société Générale forecast 0.4 per cent. The French economy grew by only 0.1 per cent in the first quarter of 2010.

“It is a disappointing figure, but it is not dramatic,” said Laurence Boone, chief economist of Barclays Capital France. “It means GDP growth will be closer to 0.4 per cent than to 0.5 per cent in the second quarter.

Olivier Gasnier, economist at SocGen, said that a 1.3 per cent increase in manufacturing output in the second quarter was in line with performance in the first quarter. The withdrawal of car scrappage subsidies was weighing on industrial production with auto industry output down 7.4 per cent in June.

But Mr Gasnier said the figures were a “unpleasant surprise” because they suggested that the recovery had begun to slow having only just got under way.

“It is disappointing because we have the impression that recovery is already flagging and that is even before the [government] budgetary adjustments have kicked in.”

A business confidence survey by the Banque de France on Monday suggested a slowdown in the rate of recovery in manufacturing and services in the second half of 2010.

According to initial estimates published on Tuesday, the central bank expects the economy to grow by 0.4 per cent in the second quarter and 0.3 per cent in the third.

By contrast, economists expect Germany to power ahead, with growth of 2 per cent in the second quarter.

The recovery in German industry has helped the eurozone’s largest economy to reduce unemployment by 280,000 since July 2009, whereas in France the jobless rate has stabilised.

Warnings of a hesitant recovery in France are likely to prompt the French government to revise down its forecast of 2.5 per cent growth in 2011, regarded by independent economists, the European Commission and the International Monetary Fund as too optimistic.

A downward revision would add to President Nicolas Sarkozy’s woes.

If Paris were to cut its 2011 forecast to 1.5 per cent, it would need to come up with additional spending cuts or tax rises of €10bn in the 2011 budget which will be unveiled later next month.

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