French consumer spending fell a sharp 1.4 percent in March as households worried about high unemployment tightened their belts, dealing a blow to hopes of recovery in the euro zone's second biggest economy. The month-on-month fall came in below the mid-range forecast for a drop of 0.30 percent in a poll of economists, and was bigger than even the lowest forecast -- a 1.2 percent drop -- from the 18 economists surveyed. Household spending, traditionally the main driver of French growth, would be subdued until later this year, economists said. "Consumption follows the labour market quite closely. And if jobs do not start to pick up, this will weigh on consumption," said Stephane Deo at UBS Warburg. "I think we will see a real improvement in consumption only in the second half of the year." The data issued on Thursday by national statistics office INSEE dealt a further blow to the conservative government's hopes of breathing life into the economy after INSEE on Tuesday revised up February's jobless rate to 9.8 percent from the 9.6 percent previously reported. "People's worries about unemployment are weighing on consumption," said Jean-Louis Mourier, an economist at investment house Aurel Leven. A poll earlier this month showed one French worker in two feared being made unemployed in the near future.
BACK-TO-BACK FALLS
March's fall in spending was the biggest since a 2.2 percent drop in November, figures from INSEE showed. INSEE revised down February's spending figure to a fall of 0.2 percent from a previously reported unchanged reading. The back-to-back falls in February and March followed a 3.3 percent surge in January, when the French splashed out in discount sales. March's weak spending readout reinforced the picture of a fragile recovery in the euro zone after a report on Tuesday showed German investor confidence deteriorated sharply in April. Weak consumer spending, high unemployment and slow growth in Germany, France's biggest trading partner, have been hampering the French recovery, just when the government needs an expansion to generate tax receipts to rein in a bulging public deficit. After voters routed the government in regional elections last month in protest at its record on jobs and reforms, the government made growth and the fight against unemployment top priorities but also stood by a pledge to reduce the deficit to within European Union limits. Budget Minister Dominique Bussereau told Europe 1 radio that France still aimed get the deficit below the EU ceiling of three percent of gross domestic product (GDP) in 2005. The deficit is set to bust this limit for the third year running this year. The March spending fall was marked by a 2.8 percent drop in purchases of retail goods, and a 10.1 percent fall in spending on textiles and leather goods, which economists attributed to the end of the sales season in February.
Spending on both household equipment and cars rose 2.1 percent -- a factor economists said offered some encouragement. "It is reassuring that spending on household goods seems to have picked up again," said Jean-Louis Mourier, an economist at investment house Aurel Leven. March consumer spending rose 1.8 percent year-on-year. Many French companies are upbeat about the business outlook. Electrical equipment maker Schneider on Tuesday raised its forecast for 2004 sales growth amid sturdier demand. However, economists say company lay-offs are hitting household morale.///