26 June 2008

FRANCE - The summer holidays in France are a national event, a high point of family life and vital to provincial economies; but this year many French families will set off with worried eyes on their wallets.

Official figures published on Thursday pointed to a nation of consumers in ever-deepening gloom about living standards, financial prospects, savings and inflation.
They are the most pessimistic about the outlook for 21 years, the survey data from the INSEE statistics institute showed.

The gloom has been growing continuously for 12 months, almost exactly since the election of a reforming centre-right government headed by Nicolas Sarkozy committed to raising buying power. Analysts are gloomier still in their comments on the latest indicator, saying it shows a sharp rally of consumption in May to have been an exception to a deeply worrying trend.

"There's no end to the collapse of French household morale," said BNP economist Mathieu Kaiser. It had fallen "month after month since last summer" owing to "high inflation, falling buying power, a reversal of the property market." At consultancy Asteres, Nicolas Bouzou said "the financial situation of households has become the number one current problem for the French economy."

Consumer confidence was "extraordinarily low" and was likely to go on falling and this would result in sluggish summer sales, he forecast. The government had few levers to pull but could deregulate in some areas to push down prices, but the effects would take time to spread through the economy. Pay could rise only through improved productivity, he said.

The index fell to minus 46 in June from minus 42 in May, a figure revised upwards, and now stands at the lowest point since it was established in its current form in 1987. Of the areas of life covered by the INSEE survey, there was a decline in confidence on the outlook for living standards, assessment of recent trends in living standards and on current and future personal finances.

Confidence also fell for making big purchases, on the possibility of saving, and on prices and expectations of inflation. The biggest fall in confidence concerned the outlook for living standards, which slumped by seven points to minus 57. Bouzou commented: "The French language is rich but we are beginning to run out of words to describe the infernal spiral of household sentiment."
The only respite had been during last August, because the survey was not carried out during the holiday, and the data showed pessimism deepening in the last two months.

One symbol of the holiday period is a mass exodus of vehicle traffic from the Paris region, at the end of June, and a mass return in August. However, government data published last week showed that consumption of petrol was running at 3.88 percent below the forecast figure owing to rises in fuel prices.

Another symbol is the beginning of the summer sales this week. The government hopes that the sales period will stimulate retail activity, and some observers have noted unusually big price reductions from day one. Car sales have also showed an underlying weak trend in recent months, despite a rally in May.

However, the governor of the Bank of France, Christian Noyer, said on Wednesday that bank lending in France remained "very vigorous." Consumer demand has been the main force behind growth of the economy in recent years, in contrast to Germany for example, where exports continue to be a mainstay despite strength of the euro.

Last week INSEE warned that the economy would grow by only 1.6 percent this year owing to 17-year-high inflation, weak consumption and a weakening property market. The government forecasts growth of 1.7-2.0 percent.

Bouzou warned it was now likely that consumption would contract from July, the first holiday month, holding back growth which, he forecast, would be 1.7 percent this year, "far from a catastrophe but not satisfactory."

[AFP/Expatica}