"We still believe that the outlook for the industrial sector has brightened lately, on the back of a moderately more positive external outlook - particularly in Germany - and rising business confidence at home."
- Diego Iscaro, economist at IHS Global Insight
French industrial production unexpectedly contracted in June after a modest recovery in May, increasing concerns about the nation's ability to emerge from recession. INSEE, France's national statistical agency, said that industrial output declined 1.4% from the previous month compared to expectations for a 0.3% growth. France's figures stand in a sharp contrast to Germany, where industrial output increased 2.4% in June, the fastest pace in almost two years. The contraction in French industrial production was caused by a decline in the production of food and agricultural goods, energy and mining. Nevertheless, in three months to June industrial production increased 1.4% compared with the first quarter.
Still, the data underscored the challenges French President Francois Hollande is facing to revive growth. Hollande has pledged to reverse the increase in unemployment by the year end, which appears to be highly unlikely. Jobless rate rose to 10.8 in Q1 and it is widely believed that it will not peak until at least next year. The IMF urged Hollande's government to accelerate economic reforms, as rigid labour market, high taxes and inefficient public spending are weighing on the economy. The IMF expects the French economy to contract 0.2% in 2013, after being flat last year, and will expand 0.8% in 2014.
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