Paris, Nov. 21 (Bloomberg) -- French consumer spending rose and Italians became less pessimistic as governments moved to cut taxes in an effort to prevent economies from stagnating. French shoppers bought 1 percent more goods in October, the government said, compared with a decline of 0.9 percent a month earlier. A confidence index based on a survey of 2,000 Italian households by the state-funded Isae institute rose to 109.8 in November from a five-year low of 109.4 the previous month. Consumer spending has kept Europe's biggest economies growing as manufacturing declines, exports slump and companies from Fiat SpA to Alcatel SA eliminate jobs. France lowered taxes in October and Italy plans to do the same next year.
``Consumption is the only thing that's holding up,'' Jean- Christophe Breuil, chairman of French toymaker Smoby SA, said in an interview. ``It should stay firm through the Christmas sales, but there's a question mark over the beginning of next year.'' Europe's economy will grow at the slowest pace in almost a decade this year, the European Commission forecasts. The dozen nations sharing the euro will expand 0.8 percent this year, from 1.5 percent in 2001. Investment will contract, leaving the burden of avoiding recession on the consumer, the commission estimates. The U.K., which hasn't adopted the euro, is faring better. Gross domestic product grew 0.7 percent last quarter and retail sales gained 0.8 percent in October, twice the pace forecast by economists.
`Slow to Accelerate'
Government debt remained lower after the figures were released. The yield on the French note due in 2004 rose 3 basis points to 2.98 percent. A basis point is 0.01 percentage point. Stocks rose. The CAC-40 index in France rose 3.6 percent to 3266.7 at 10:45 am Paris time. Milan's Mib30 gained 2.3 percent to 25331. They are down 29 percent and 22 percent respectively this year. ``The worst may be over for the economy,'' said Luigi Cammilli, who helps manage 1.7 billion euros for Banca C. Steinhauslin & C. SpA in Florence, Italy. ``Still, in Europe growth will be slow to accelerate compared with the U.S.'' France, Europe's third-largest economy, probably grew 0.3 percent in the third quarter, from 0.4 percent in the previous three months, economists said in advance of a government report tomorrow. Italy's economy grew 0.3 percent, the same pace as in Germany. The U.S. economy, the world's largest, expanded at a 3.1 percent annual rate in the third quarter. Growth will probably slow to 1.6 percent in the fourth quarter, a Blue Chip Economic Indicators survey on Nov. 10 showed.
Tax Reductions
To combat the slump, French President Jacques Chirac has trimmed taxes instead of reducing the deficit. A 5 percent cut in income tax put 2.55 billion euros ($2.55 billion) in the pockets of French workers in October, and nine million low-income workers received a one-off tax credit worth an average of 300 euros. Only a fraction of the extra money -- equal to 2 percent of households' income in the fourth quarter -- was spent last month, according to government statistics office Insee. The rest will probably be spent over several months. In Italy, Prime Minister Silvio Berlusconi is cutting taxes by 5.5 billion euros ($5.5 billion) for low earners next year to try to boost spending and growth. France's jobless rate of 9 percent is second-highest among the Group of Seven major industrial nations. Jobless lines may lengthen as companies including Alcatel, Europe's largest maker of telephone equipment, cut jobs. The rate will increase to 9.3 percent by year's end, the government forecasts.
`Nothing Catastrophic'
``From month to month we see a slight deterioration,'' Serge Weinberg, chief executive officer of department store company Pinault-Printemps-Redoute SA, said at a conference earlier this month. ``In France, the dimming of the economy is long and drawn out, but nothing catastrophic.'' Two of Italy's biggest manufacturers, Fiat and Pirelli SpA, are cutting 10,000 jobs to counter waning demand. The country's largest clothing company, Benetton Group SpA, lowered its sales forecast last week. Lower taxes may not prevent the economy from slowing in coming months. ``This is going to be a bad Christmas,'' said Carlo Comandini, 69, owner of the Comandini menswear shop in downtown Rome. ``I expect sales to drop 30 percent.'' The European Central Bank may help by reducing interest rates as soon as next month, policy makers from Austria to Spain have suggested since the start of last week. Ernst Welteke, an ECB council member, signaled two days ago the bank is more concerned about growth than inflation. ``The risks to the economy tend to be -- I'm sorry to say -- on the downside,'' Welteke said. The ECB two weeks ago left its benchmark rate at 3.25 percent, the level its been at for a year, and futures trading indicates investors expect lower borrowing costs.//www.quote.bloomberg.com The implied yield on the three-month Euribor contract due in December is unchanged at 2.91 percent. The March contract yielded 2.82 percent.