Paris, March 22 (Bloomberg) -- French consumer spending fell the most in sixmonths in February and wage growth slowed during the fourth quarter, amidsigns the euro region's economic expansion is beginning to stall. Spending declined 0.9 percent from January, when it gained a revised 2.2percent, national statistics office Insee said. Economists had expected a dropof 1.1 percent. Wages rose a revised 0.4 percent in the three months ended inDecember, after a gain of 0.7 percent in the third quarter, the government said. Prospects for slower growth worldwide have prompted ECB officials to suggestthey are more likely to cut interest rates in coming weeks. Businessconfidence in Germany, the region's largest economy, fell to the lowest sinceJuly 1999 in February, a report showed yesterday. ``The ECB missed the opportunity to shore up confidence with an early ratecut,'' said Adolf Rosenstock, an economist at Nomura International Plc. ``Thedike is cracking and it's time for the sandbags.'' ECB council member Otmar Issing cited increased risks to growth in aninterview published today with the Wall Street Journal Europe. WimDuisenberg, ECB president, said yesterday in a speech the U.S. slowdown``may be more significant than previously anticipated'' and could ``haveimplications for world economic growth and thus for the euro zone.''
Interest Rates
Investors have moved up expectations for a rate cut. The implied yield onEuribor interest rate futures contract for April delivery traded at 4.51 percent,24 points below the central bank's 4.75 percent benchmark lending rate. Thecontract traded at 4.65 percent as recently as Tuesday. ``2001 is proving to be a difficult year,'' said Bruno Bich, Chairman of GroupeBic SA, which makes pens and cigarette lighters. ``Certainly we feel theimpact of the slowdown in the U.S. -- our sales were basically flat in Januaryand February, whereas the first quarter of last year was very strong.'' Until now, the central bank has said it's waiting for evidence of slowing inflationin the 12 nation region. The rate accelerated to 2.6 percent in February from2.4 percent in January, putting it above the ECB's 2 percent limit for the ninthmonth in a row. The ECB is the only major central bank that hasn't lowered borrowing costs inresponse to a slowdown in the world's largest economies. The U.S. FederalReserve on Tuesday reduced its key interest rate half a percentage point to 5percent, the third such cut this year, after gross domestic product expanded atthe slowest pace in five years during the fourth quarter. BNP Paribas SA economists expect the euro economy to grow 2.4 percentthis year and the U.S. to expand 1.3 percent, down from 3.4 percent and 5percent in 2000, respectively.
French Economy
The French government expects falling unemployment and 200 billion francs($27.3 billion) in tax cuts between last year and 2003 to help cushion theregion's second-largest economy from the effects of weaker exports. ``French consumer spending is bound to accelerate again, due to the declinein oil prices, the strength of the labor market and the effects of the tax cuts,''said Stephane Deo, an economists at UBS Warburg in London. Even so, BNP Paribas economists expect French growth to slow to 2.6percent this year from 3.2 percent last year, less than the 2.8 to 3.0 percentprojected by the government. ``You have to be careful with assuming that France can somehow weather theU.S. slowdown,'' said Rosenstock at Nomura. ``They can't.''
Discount Sales
Today's report also revised lower January's spending gain, to 2.2 percent from3.2 percent. That increase is still the biggest in a year and a half, driven by thebeginning of a discount sales season. February spending on household goods, such as stereos and furniture,declined 0.3 percent, while purchases of clothes and leather products receded1.8 percent. Spending on cars and car parts rose 1 percent while purchases ofother goods such as books and watches fell 1.3 percent. Economists expected a drop of 1.1 percent in February. From a year ago,spending increased 1.7 percent. Today's report on spending on manufactured goods, which account for aquarter of French consumer spending, is seasonally and working-day adjusted.