Gloomy French consumers cloud growth prospects

1st May 2011, Comments 0 comments

French consumers have tightened their belts, concerned about inflation and jobs, with analysts warning this could dent economic prospects in a country where consumer spending traditionally fuels growth.

French consumer spending on manufactured goods dipped by 0.7 percent in March, the INSEE national statistics agency reported this past week.

Consumer confidence held steady in April but remains well below its long-term average, according to INSEE.

"While not catastrophic, these developments are a reminder of a sad and inevitable reality, the little recovery in 2010 is already in the process of withering away," said economist Marc Touati at Assya Compagnie Financiere.

While consumer spending still rose by 1.2 percent in the first quarter of the year, analysts said the outlook is not good.

One reason is falling car sales, primarily due to the end of government purchase incentives at the end of 2010. They were a major factor behind the drop in March spending.

"With the last deliveries of vehicles ordered before the expiry of the incentives, fresh drops can be expected in the months to come," said economist Alexander Law of Xerfi.

Most economists about expect a second quarter drop in consumer spending, which has been the motor behind France's tepid recovery.

France managed 1.5 percent growth last year and the OECD expects the economy will grow by 2.0 percent this year.

"Unemployment remains high and inflation is running higher than wage increases, fueling at once an erosion in purchasing power and consumer confidence," said Law.

The French labour market has improved marginally in the past few months, but 2.68 million workers remain jobless.

INSEE found increased consumer concern in April about price rises and the possibility of becoming unemployed, and a worse outlook about the future.

For economist Nicolas Bouzou of the consulting firm Asteres, the key is "the way in which households adjust their behaviour to rising prices."

French consumer prices rose 0.8 percent in March, lifting the annual inflation rate to 2.0 percent.

The French government recently raised its inflation estimate for this year to 1.8 percent from 1.5 percent, due to the spike in the price of oil and raw materials.

"A slowdown in consumption could transpire in the second quarter due the expected acceleration in inflation," said Mathilde Lemoine, an economist at HSBC bank.

"Growth in the second quarter could as a result be lower than expected," she added.

That is a view shared by Marc Touati at Assya Compagnie Financiere.

Weak consumer spending "will of course weigh on French gross domestic product, which after a decent first quarter should fall sharply until the end of 2011.

© 2011 AFP

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