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French morale dives to 6-year low
PARIS, France (Reuters) -- French consumer morale dived to its lowest level in nearly six years in February as a swathe of job lay-offs and mounting concern over Iraq unsettled shoppers in the euro zone's second largest economy. Perceptions about future employment prospects in the survey deteriorated to their worst level in nearly a decade which economists warn could damage already fragile consumer spending. National statistics office INSEE said Tuesday its consumer confidence index fell to minus 26 from minus 22 in January, its lowest level since the minus 31 recorded in May 1997. The survey is based on telephone calls to some 2,000 households. "After resisting for a long time, consumer morale as expected has started weakening over the past two months,'' said economist Marc Touati at Natexis Banques Populaires. "We are really at the crossroads now. If things do not start getting better within two or three months -- and particularly if the concern over Iraq is not lifted -- we risk a real drop in actual consumer spending,'' he warned. With consumer spending a key support to the wider French economy in recent years, economists said there was now a risk that a long-awaited economic upturn would be further delayed. "All this will weigh on consumer spending in 2003 with economic growth closer to one percent than 1.5 percent,'' said Emmanuel Ferry at investment house Exane. "That is too weak a level to create jobs. We are in a vicious circle,'' he warned. In a move economists had been expecting for months, French Finance Minister Francis Mer finally conceded last week that the government's growth target of 2.5 percent for this year was no longer realistic. He gave no new forecast. FACTORY CLOSURESThe part of the INSEE index recording household views on the quality of life in coming months slumped to minus 41 from minus 30 in January, while the part measuring consumer readiness to make large purchases fell to minus 17 from minus 10. A minus or plus figure is calculated as the difference between the percentage of negative or positive replies to each component in the index. The final index figure is the arithmetic mean of those figures, with a seasonal adjustment. A separate part of the questionnaire not included in the calculation of the index showed that concern about unemployment rose to 81 from 64 in January to reach its highest level since October 1993. The morale figures come after the European Commission's euro zone economic sentiment index on Friday highlighted the fragile state of the 12-member region with falls in both its industrial and consumer morale components. A glimmer of optimism emerged last week as French consumer spending for January showed a smaller-than-expected 0.2 percent drop, but economists noted that was largely due to the one-off effect of shoppers taking advantage of winter sales. Morale has been thumped by a swathe of factory closures by big-name manufacturers like food group Danone and aluminium and packaging firm Pechiney, plus thousands of threatened job losses at metals group Metaleurop and debt-laden airline Air Lib. French unemployment was steady at 9.1 percent for January but domestic news headlines focused on the 0.7 percent rise in the number of jobless to 2.3 million. Economists also cited concern over the government's plans to reform the generous but financially precarious French pension system, with many employees fearing they will inevitably be forced to pay more contributions into the system. Fears have also grown that France's rising budget deficit will force it to introduce an austerity budget of spending cuts, a scenario which Prime Minister Jean-Pierre Raffarin has emphatically ruled out for the time being. Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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