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By
Reuters
Published
May 26, 2010
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French consumers trim spending, Germans gloomy

By
Reuters
Published
May 26, 2010

By Vicky Buffery

PARIS, May 26 (Reuters) - French and German consumers are drawing their horns in with data on Wednesday 26 May showing French spending fell more than forecast in April as car sales slid, while sentiment among German consumers fell, stoking fears on the strength of euro zone recovery.



France's national statistics office INSEE said on Wednesday 26 May household spending on manufactured goods in the euro zone's second largest economy fell 1.2 percent on the month in April, far exceeding a Reuters consensus forecast for a decline of just 0.5 percent.

The reading followed a marked 1.9 percent drop in consumption over the first quarter of the year, following the scaling down of the government's car scrappage bonus scheme.

"April's figures show car sales are still dropping which means the correction in consumption could continue in the second quarter," said Olivier Bizimana, economist at Credit Agricole.

"That means that we could have weaker than expected GDP growth in the period... simply because French growth is essentially driven by consumption," he said.

Consumer spending on manufactured goods sets the pace for overall household consumption which in turn accounts for over half of French gross domestic product.

France eked out a meagre 0.1 percent growth in the first quarter of the year, lower than expected, as the scaling back of temporary spending props weighed heavily on consumer spending.

Investors fear that without this financial aid, consumers have little incentive to spend, with unemployment running at 10.1 percent, and fiscal rigour and pension reforms looming on the horizon in the wake of the Greek debt crisis.

OUTLOOK IN FRANCE, GERMANY CLOUDY

German data on Wednesday 26 May showed consumer sentiment there was likely to fall in June as the euro zone crisis weighed on households' view of the economy and income expectations.

The key GfK consumer sentiment indicator, based on a survey of 2,000 Germans, fell to 3.5 for June from a revised reading of 3.7 for the previous month. Economists polled by Reuters had forecast the figure to fall to 3.6 from a previously reported reading of 3.8 for May.

"The debt crisis is leaving its mark on German consumer confidence. It has brought to politicians' and consumers' attention the need for budget consolidation," said Dekabank economist Andreas Scheuerle, adding, "Now consumers expect a weaker development in their incomes." <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic showing German consumer sentiment and French consumer spending: here ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

In France, consumers scaled back purchases of durable goods by 4.4 percent in April, with car sales dropping 9.5 percent.

Purchases of clothes and shoes also fell 1.2 percent on the month, and household equipment edged down 0.3 percent.

"Economic policies on pensions, spending cuts and so on, plus unemployment and what's happening in neighbouring countries, all that suggests that household confidence (in France) is going to remain low," said Bizimana.

In separate data, INSEE said business confidence in the French manufacturing sector edged up to 97 in May, from 96 in April, just below the long term average of 100.

But the outlook for general production levels fell to -3 from +8, reflecting increased uncertainty over the economic climate.

"We nevertheless stick to our view that the manufacturing sector should continue to benefit from improving global economic conditions and the fall in the euro," said Joost Beaumont, an economist with Fortis Bank Nederland.

An Infraforces survey published on Tuesday 25 May showed 91 percent of French people believe the euro crisis will have an impact on their day-to-day lives, and notably on employment and pensions.

The survey also showed 77.9 percent expect the government to follow a policy of fiscal rigour, although ony 50 percent anticipate strict austerity measures. (Editing by Crispian Balmer, Ron Askew)

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