Paris, Nov. 22 (Bloomberg) -- French economic growth slowed in the third quarter to the weakest pace in almost a year, as companies scaled back investment and reduced inventories. Gross domestic product expanded 0.2 percent from the second quarter, when it rose at twice that pace, the government said. That's slower than the 0.3 percent pace reported in Germany and Italy earlier this month. ``Our customers are suffering,'' said Stanislas de Bentzmann, co-Chairman of Devoteam SA, a Internet and technology consulting company, in an interview. ``2002 has been an extremely difficult year.'' Slowing growth in Europe and the U.S., destination of three- quarters of France's exports, has weighed on orders and damped executives' confidence. Alcatel SA, Europe's largest telephone equipment maker, has eliminated about 19,000 jobs this year and sold 17 factories.
``I don't see a rebound any time soon,'' said Bruno Cavalier, an economist at Credit Lyonnais SA in Paris. ``France can't go it alone.'' Corporate investment slumped 0.8 percent and a decline in inventories shaved 0.3 percentage point from growth, today's report showed. French manufacturers pared production for the fourth month in five in September. Export growth slowed to 1.2 percent, compared with 1.7 percent in the second quarter. Paris-based Devoteam said it lost money in the first half of this year, following a profit last year. Hewlett Packard Co., the world's biggest personal-computer maker, said last month it will eliminate 1,206 jobs in France.
Neighbors
France, Germany and Italy together account more than two- thirds of the economy of the dozen nations that share the euro. Expansion across the region will slow to 0.8 percent this year, the slowest pace since the 1993 recession, according to the European Commission. That's putting pressure on the European Central Bank to lower borrowing costs. ECB officials from Austria's Klaus Liebscher to Spain's Jaime Caruana last week said they expect inflation to slow next year, a sign they may support a reduction in interest rates at the next meeting on Dec. 5. Investors expect the bank's policy makers to shave at least a quarter point off its benchmark rate of 3.25 percent as soon as next month. The implied yield on the three-month Euribor futures contract maturing in December is 2.92 percent.
Consumption
Consumption is the bright spot in today's report. Shoppers have spared the economy from recession. Household spending, which accounts for more than half of GDP, accelerated to 0.7 percent in the third quarter, from 0.4 percent in the previous three months. While unemployment climbed to a two-year high in September, a 5 percent cut in income tax came into effect the same month and put 2.55 billion euros ($2.55 billion) into people's pockets. On top of that, nine million low-income workers received a one-off tax credit worth an average of 300 euros last month. ``The recovery will come from consumption,'' said Dominique Barbet, an economist at BNP Paribas SA. At the same time, ``the beginning of next year will be difficult.'' A continued slump in financial markets and concern about a potential war in Iraq may weigh on spending, analysts say. The CAC 40 stock index has shed 30 percent this year and the cost of a barrel of Brent crude oil has gained nearly a fifth. Meanwhile, the government has little room to spur growth further. Next year, income taxes will only be cut by 1 percent as France's budget deficit approaches the European Union's ceiling. //www.quote.bloomberg.com