Paris, March 4 (Bloomberg) -- French consumer confidence fell to the lowest in almost six years in February as the threat of an Iraq war fueled concern about unemployment rising further. An index based on a government survey of 2,000 people fell to minus 26, the lowest since May 1997, from minus 22 in January. Economists had expected minus 23. A separate index showed concern about unemployment rose to the highest in almost a decade. ``As long as the Iraqi row isn't over, that won't help spending,'' said Pascal Roussarie, an analyst at Cetelem, France's largest consumer credit provider, which has 9 million customers in Europe. ``Lingering pessimism over several months will hurt consumption.''
Unemployment is at a 2 1/2 year high as Europe's third- largest economy barely grows. Consumer spending, which accounts for more than half the economy, prevented a recession last year. European Central Bank President Wim Duisenberg has signaled the bank may reduce interest rates as prospects fade for recovery in the dozen nations sharing the euro. Cap Gemini SA, Europe's largest computer-services company, and smart-card maker Gemplus International SA are among the companies that are slashing hundreds of jobs. The threat of a U.S.-led war against Iraq is hurting consumer and business confidence across Europe, analysts say. European consumer confidence fell to its lowest level in over six years in February and business confidence fell for a second month, a sign the 12-nation euro economy may shrink this quarter.
ECB Rate Debate
The U.S. and U.K. are pressing for military action to force Iraq to comply with United Nations resolutions calling on Saddam Hussein to disarm. France is leading the opposition, demanding that UN inspectors be given more time to search Iraq. Brent crude oil prices rose almost 50 percent in the last 12 months. Still, European manufacturing grew for the first time in six months in February, a report yesterday showed. The expansion may make it harder for Duisenberg to reach consensus on reducing interest rates when policy makers meet in two days time. Duisenberg on Feb. 22 said he no longer expects a rebound this year, leading investors to bet on a cut at the council's meeting on Thursday. Three days later, Bank of France Governor Jean-Claude Trichet forecast a ``significant'' recovery by the end of this year. Investors expect lower borrowing costs as soon as Thursday, interest rate futures trading shows. The rate on a three-month euro deposit maturing in March is at 2.43 percent compared with 2.59 percent before Duisenberg's remarks. The ECB last pared its benchmark rate by half a point to a three-year low of 2.75 percent on Dec. 5. ``A rate cut would be desirable,'' said Charles de Croisset, Chairman of CCF, the French unit of HSBC Holdings Plc., in an interview Monday. ``Europe's economy is almost stagnating.''
Struggling to Grow
Dwindling consumer confidence reduces the prospects for a rebound in coming months. Ernest-Antoine Seilliere, president of Mouvement des Entreprises de France, the country's largest business group with more than 750,000 companies as members, said that even 1.5 percent will be ``hard to reach.'' The French economy grew 1.2 percent last year, the least since 1996, government figures showed last month. Spending on manufactured goods fell for the second time in three months in January, led by a drop in car purchases. French car and light-truck sales fell 7.6 percent in February from a year earlier, the French carmakers' association said yesterday. Renault SA, the country's No. 2 carmaker, led the decline. ``The car market is worrisome,'' said Pascal Roussarie at Cetelem, which offers car and home loans, and issues credit cards. ``Sixty percent of cars are bought with loans.''
Job Losses
The number of jobseekers, which rose to 2.47 million in January, representing 9.1 percent of the workforce, will probably rise further. Cap Gemini is shedding a total of 6,739 jobs between early 2002 and early 2004, Chief Executive Officer Paul Hermelin said last week. Air Lib, formerly France's No. 2 airline, is being liquidated and about 3,200 employees will lose their jobs. Concern that the French government will increase the contribution period that entitles workers to a full pension -- currently 37 1/2 years in the public sector, and 40 years in the private sector -- is also weighing on shoppers' sentiment. Prime Minister Jean-Pierre Raffarin has said he will come up with a plan to shore up the pension system's finances, which will come under growing strain because of the ageing population this decade and next, by the middle of the year. //www.quote.bloomberg.com