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UPDATE 1-French consumer spending jumps but concerns grow

Published 02/24/2009, 05:19 AM
Updated 02/24/2009, 05:24 AM
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(Adds detail, analyst comment, background)

By Francois Murphy

PARIS, Feb 24 (Reuters) - French consumer spending rebounded far more strongly than expected in January as shoppers spent heavily on cars and other goods, but their concerns about the future have grown, official data showed on Tuesday.

Consumer spending on manufactured goods rose 1.8 percent compared both with a month earlier and a year before, far surpassing the monthly increase of 0.2 percent predicted by analysts. The rise followed a 0.9 percent fall in December.

"It confirms the diagnosis that there is no problem with consumption in France since we have had very strong disinflation, which increases households' purchasing power, even if they don't notice it necessarily," said Asteres economist Nicolas Bouzou.

Inflation in the euro zone has fallen sharply since last summer. In France it has tumbled from above 3 percent to less than one percent in December.

That has helped cushion the blow of the global financial crisis in France, where consumer spending has traditionally been the motor of economic growth.

"It really is the equivalent of a stimulus plan, which is significant, all the more so because it is focused on energy and food," Bouzou said, adding that he thought lower inflation was the main factor behind January's bounce.

All components of the indicator rose markedly, with the exception of the "other manufactured goods" category, which was flat, national statistics office INSEE's figures showed.

Spending on automobiles, which has taken a beating in the global economic downturn, rose 2.8 percent, helped by bonuses offered for trading in old cars to buy news ones.

Outlays on household equipment increased by 3.0 percent and spending on textile-leather goods jumped 4.7 percent in a month.

French President Nicolas Sarkozy has pushed through a 26 billion euro ($33.13 billion) stimulus plan focusing on public investment in projects such as building roads and modernising rail links rather than giving direct help to consumers.

ROUGH RIDE AHEAD

The government will use Tuesday's figures to back its view that consumption is robust and more aid is not urgently needed, but Sarkozy has already caved in to union pressure to give further help by easing some income taxes and boosting benefits.

He has stopped short, however, of meeting unions' demands to increase the lowest wages, saying that such a move would place an unbearable burden on small and medium-sized companies.

Strikes over pay have also crippled the French Caribbean island of Guadeloupe as protesters demand a 200 euro increase in the lowest monthly wages in a dispute that many fear could spread to mainland France.

"The real question is whether this constitutes a sustainable movement and in my opinion the answer is no," Societe Generale economist Olivier Gasnier said of the consumer spending figures.

"The fall in consumer morale is related to the drop in the popularity of the government and should be seen in the context of a worsening social climate, not just in Guadeloupe but also in the labour market," he added.

In a country with a high level of state benefits, unemployment has been on the rise for months but ski resorts have enjoyed a bumper season and cinemas have been full. Gasnier, however, said the worse could be yet to come.

"Consumption has held up so far thanks to the fall in the oil price but this effect is likely to dissipate and the impact of the worsening jobs market will take precedence," he said.

A separate survey on consumer confidence in February showed a slight worsening, with the headline figure falling one point to -43, slightly worse than the -42 expected by analysts.

The outlook for personal finances, living standards and spending opportunities worsened but respondents saw an improvement in future unemployment.

"I think we're heading for some difficult months for consumer spending and we'll need specific measures to support it," said Cyril Blesson, an economist at Seeds Finance.

(Additional reporting by James Mackenzie, Vicky Buffery and Veronique Tison; Editing by Jason Neely)

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