French consumer confidence hits lowest in 21 years

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Latest data shows French families tightening their budgets as they worry about purchasing power and jobs.

29 July 2008

PARIS - French families, in the midst of the annual holiday ritual, are the gloomiest for 21 years about what their wages will buy, living standards and jobs, official data showed on Tuesday.

The great exodus from the cities to the beaches, mountains and countryside is a high point in French family life and family budgets.

But the latest data from the INSEE statistics institute points to tight purses and worried thoughts about another great event in the French calendar, the "rentree," or return in time for the new school year in September.

The INSEE adjusted indicator of household confidence fell in July by two points from the June level to minus 48, showing the 13th monthly fall in a row.

At Xerfi consultants, economist Alexander Law said: "The crisis of confidence is now evident."

In July, the impression of households about living standards in France continued to deteriorate, both regarding the recent past and the future.

At Asteres consultants, economist Nicolas Bouzou said the data reflected past increases in prices which weighed on buying power.

One brighter spot was a measure of consumers' perception of future personal finances which edged up slightly in July. Economists said that this probably meant that people had noticed that the rate of price increases in July had eased.

At BNP Paribas, economist Mathieu Kaiser said: "The trend of prices seems to have weighed less on their finances than during the last two months.

"But the (easing trend for) prices of raw materials for energy and food will have to continue for inflation no longer to depress buying power."

In the last two weeks, the price of oil has fallen by about 20 dollars per barrel.

Law said: "Every significant fall in prices is likely to boost buying power immediately, and that would brighten the outlook while giving a much-needed stimulus to household consumption."

But economists expect consumption to be sluggish in the second half of the year. Kaiser noted that intentions to make purchases had steadied in July, but at a particularly low level which "does not point to a quick recovery of consumption."

After a rally in May, consumption fell in June.

At Global equities, economist Marc Touati said that concern about prices had led to concern about unemployment. Concern on that front in July had reached "the highest point since March 2006," he said.

Job cuts, he warned, would affect industry and construction, as evidence by other data showing a 28.2 percent fall in the number of housing starts from April to June.

Bouzou commented: "This is a problem because it looks as if, even though anticipation of inflation is easing, the worsening outlook for employment will take over in dragging household confidence down."

Bouzou said that the overall French economy would not pick up until consumption rose, and Law said that his forecast for economic growth of 1.7 percent this year would not stand up to "another setback for domestic demand."

At Natixis bank, Jean-Christophe Caffet said: "The French are ever more worried about the darkening world economic situation and the jobs market.

"Even if inflation is calming down, to the detriment of consumption they will be tempted to build up rainy-day savings."

Evidence of summer blues is emerging from other quarters. The retail sales period is coming to an end, and shopkeepers report that buyers have kept a tight hold of their purse strings.

Anecdotal evidence of full camping sites and unfilled hotels, of sandwich lunches in parks and slow trade in seafront restaurants also suggests that families on holiday are holding back.

[AFP / Expatica]

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