Research Dept. News
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Monthly Report, num 310 - February 2008
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European Union - France
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France: consumer confidence weakens but economy keeps going
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In France, consumer confidence drops due to concern about sharp bite from inflation.
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Reform efforts in France have come up against an enemy that, because unexpected, may not be so tough after all. In the face of an attempt to give priority to moves of a structural nature, the immediate worsening of the situation has turned out to be the ordinary citizen’s real concern. In the fourth quarter consumer confidence dropped by 5 points, largely because French consumers have taken a negative view of the current situation. Not so much of the future situation, on the other hand, which is showing less worse. This result cannot fail to be paradoxical given the fact that generally the future is expected to be worse than the current situation.
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Other indicators point only to gradual slowdown.
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The press has reflected this concern paying special attention to the worse inflation and the loss of purchasing power this involves. This is not merely a rhethorical question. Households really are tightening their belts as shown by the fact that household consumption grew at a rate of 3.2% year-on-year in the fourth quarter, far from the 4.2% in the third quarter. This was a logical reaction given that inflation in December moved up to 2.6% year-on-year, whereas one year earlier in December 2006 the growth rate was only 1.5%.
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But these bad figures, while relevant, are not the whole story. Some indicators are showing substantially better than expected results. Industrial production, to look no further, grew by 3.4% year-on-year as the average for October and November compared with 2.3% in the third quarter. Given that exports up to November continued to slow down, this rise in industry suggests that the domestic market is not in such bad shape as it might appear.
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The economic sentiment indicator is pointing in the same direction and while it dropped in the fourth quarter this was a moderate downward shift of scarcely one point. This makes it possible to foresee that in the fourth quarter French growth will not be very far from the previous quarter when the economy moved ahead by 2.2% year-on-year. Furthermore, the drop in the unemployment rate will continue to ease the rigours of the slowdown for some time.
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Forecasts suggest 2008 will be far from disastrous.
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Later on, things may get worse but, at least in the matter of economic growth, the French economy seems ready to be able to avoid any great loss of strength and could drop only moderately below 2% in 2008. To do this, the road of pragmatic reform, international agreements and letting the balancing systems of the French welfare-state model operate (that is to say, continuing what seems to be the direction of the government up to now) may remain a well-devised combination in spite of the worsening of the immediate economic situation.
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