French consumer spending buoys growth outlook

Ulhas Joglekar ulhasj at
Thu Mar 30 06:34:05 PST 2000

Saturday 25 March 2000

French consumer spending buoys growth outlook By Matthew Green PARIS: French consumer spending raced ahead in February, beating expectations and bolstering prospects of robust economic growth in France this year. Spending jumped 2.2 percent month-on-month in February, shooting past average predictions of a 0.3 percent increase and building on a revised 2.0 percent rise in January, according to data from French national statistics office INSEE. "The consumer data is exceptional, we expected much less. The upward revision of the January figures make the February data even stronger," said Exane economist Emmanuel Ferry. Economists said the data suggested economic growth would hit 3.5 percent this year, up from 2.7 percent in 1999, as consumer spending expanded its role in pushing France to the forefront of the euro-zone recovery. "This confirms consumer spending will be a major factor supporting growth in 2000," said Marie-Pierre Ripert, economist at CDC Marches. Economists said steady declines in French unemployment would further bolster sentiment and help consumer spending grow by 2.9 percent in 2000 from 2.3 percent in 1999. Spending was particularly strong on durable goods, rising 3.5 percent in February from 2.2 percent in January, boosted by a recovery of car purchases, which rose 3.8 percent after falling 0.1 percent in January. The high figure was partly explained by a late start in January sales that extended the discounting period into February and encouraged more spending during the month. Economists said an unexpected 40 billion francs of cuts in income, sales and housing taxes announced by Socialist Prime Minster Lionel Jospin last week would give consumer sentiment an extra lift in coming months but risked boosting growth too quickly. DATA RAISES QUESTIONS ABOUT JOSPIN'S TAX CUTS "It puts a big question mark over Jospin's mini-budget...It is totally inappropriate to give the economy a further boost when it is already growing so strongly," said Gwyn Hacche, economist at HSBC. Economists said the figures provided the latest evidence of healthy euro-zone growth that could force the European Central Bank (ECB) to rise interest rates sooner rather than later. "The economic situation in the euro zone is very robust and interest rates at 3.5 percent are looking increasingly innappropriate," said Robert Lind, economist at ABN Amro. But rising inflation in fellow euro zone heavyweights Italy and Germany is still likely to prove more of a headache for the ECB than in France, where price rises are below the euro zone's 2.0 average. Final annual inflation figures for February confirmed preliminary data that showed consumer prices rose by 1.0 month-on-month, trimming the annual rate to 1.4 percent from 1.6 in January, suggesting inflation had peaked for the year. Economists said they would be looking for confirmation from January industrial production figures due on Friday to see whether France's factories, which slowed a shade in December, would support the consumer boom. (Reuters) For reprint rights: Times Syndication Service
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