French consumer confidence plunges

French consumer confidence plunges

By Ben Hall in Paris

Published: January 29 2008 11:48 | Last updated: January 29 2008 22:32

French consumer confidence plunged to a record low in January according to officials figures published on Tuesday, reflecting deepening concern about financial market turmoil and rising prices.

The study by INSEE, the French statistical agency, found that household confidence dropped to its lowest level since 1987, when the series began.

The figures reveal the growing anxiety of French consumers, with record pessimism about future living standards and a growing reluctance to buy.

Mathieu Kaiser, economist at BNP Paribas, said willingness to buy goods had fallen to its lowest level for 10 years.

The INSEE survey was completed before last week’s sharp fall on European stock markets, and the discovery of a EUR4.9bn fraud at Socie'te' Ge'ne'rale, suggesting confidence could be even weaker in next month’s figures.

The credit squeeze and falling stock markets appear to have taken a heavier toll on French morale than in other EU countries, such as Germany.

According to a survey published on Tuesday in Le Parisien newspaper, 77 per cent of those asked thought the financial turmoil would have a big impact on French growth and 68 per cent said it would have a big impact on their living standards.

Heightened French concern about the repercussions of a financial crisis helps to explain President Nicolas Sarkozy’s desire to restore order to a system which he says has lost sight of its purpose.

“Unlike in Britain, where people are perhaps more philosophical, the turmoil creates an atmosphere of anxiety in France and that could hit confidence quite hard,” said an official in the finance ministry in Paris.

The French government now predicts the economy will grow by around 2 per cent in 2008, the bottom end of its range of 2 to 2.5 per cent. Ministers point to the underlying resilience of French companies and the continued buoyancy of the housing market as reasons why France may suffer less from a US slowdown and a credit squeeze.

Most private sector economists are more pessimistic, forecasting growth of between 1.5 and 1.8 per cent this year. They point to rising inflation, a slowing fall in unemployment and tighter credit conditions.

Concern about inflation in France remains particularly acute. Although, at 2.8 per cent in December, the French consumer price index is lower than in Germany, where it reached 3.1 per cent in the same month, it has risen sharply from 1.6 per cent in September.