French shoppers resilient

Confidence falls, unemployment rises, yet people still shop

French consumer spending rose much faster than economists had predicted in September, but due to climbing unemployment the mood remained fairly pessimistic for the rest of the year.

"Given our pessimistic stance on the French labour market we expect consumption to weaken until the end of the year," said UBS Warburg economist Stephane Deo.

French unemployment rose throughout summer to reach 9% in August.

Lay-offs of workers and the closure of factories have dented the confidence of shoppers.

In September, household confidence fell to its lowest level since May 1998.

"Confidence is going to deteriorate but that consumption will resist quite well, even if it should ease a little, thanks to the government's efforts to lower taxes," said Nicolas Claquin, an economist at CCF.

Rising, not falling

Consumer spending rose by 0.2% in September, the statistics office INSEE said on Tuesday.

Analysts had expected a 0.9% fall.

"I think the consensus forecast was much too pessimistic, probably because people were expecting an 11 September impact," Mr Deo said.

"The information we were getting from companies was that the first weekend after the attacks was more or less normal."

Tax cut impact

During the third quarter of 2001 as a whole, consumer spending rose by a whopping 2.1% after having failed to grow at all during the second quarter.

Low inflation and tax cuts for low paid workers helped boost spending, said Mr Deo.

Government stimulus

Economists were not alone in painting a gloomy picture of the French economy.

Last week, the French government announced an economic stimulus package, slashed its growth forecast for 2001 to 2.1% from 2.3% and said its 2.5% target for 2002 may be tough to achieve.