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French industry pulls ahead of Germany with unexpected August output surge

[PARIS] French industry increased production by the most in over two years in August, beating expectations by a wide margin, in contrast with slumps in other big euro zone countries such as Germany, data showed on Friday.

France's official statistics office, INSEE, said industrial output jumped 1.6 per cent over one month, largely reversing a 1.1 per cent drop in July.

The surge beat economists' average estimate for an increase of only 0.5 per cent. In a poll of 27 economists, all estimates were much lower except for Societe Generale, which was spot on with a 1.6 per cent prediction. "It's a reassuring number after the worrying figure in July, though there's a lot of volatility around the summer period," Barclays economist Francois Cabau told Reuters. "The main message remains that growth is coming back in the third quarter, though it remains tepid." French growth stalled in the second quarter as companies drew down inventories rather than increasing production, but business sentiment surveys since have pointed to a pick-up in activity.

The improved August industrial output was in part fuelled by greater car production after some car makers brought summer holidays forward. Strong production was also seen in chemicals, textile and clothing, INSEE said.

France's industrial production outpaced Germany's, which fell in August at the fastest pace in a year, dropping a worse-than-expected 1.2 per cent, according to official data earlier this week.

Germany is feeling the slowdown in China much more than France. German exports plunged in August by the most since the depths of the financial crisis.

Italian industrial production also pulled back more than expected in August, falling 0.5 per cent from July, slightly worse than forecasts of a decrease of 0.3 per cent, the ISTAT statistics institute said on Friday.

Among the other big euro zone countries, Spain also reported a slump in August industrial production on Wednesday, down 1.4 per cent from July, the biggest drop since April 2013.

French companies are benefiting from a payroll tax credit scheme designed to improve their competitiveness. It helped bring down corporate tax by 37 per cent in January to August compared with the same period last year, according to monthly budget data on Friday.

Despite China's slowdown and the rut other big emerging market economies are in, France's Socialist government expects the economy to grow at least 1.0 per cent this year, which would be the strongest performance since 2011.