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Tuesday, 3 July, 2001, 12:09 GMT 13:09 UK
French consumer confidence tumbles
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French consumer confidence has dropped to its lowest level in nearly two years following a recent spate of job losses and signs of rising inflation.

Statistics institute INSEE said its consumer confidence index had fallen to minus eight for June, down from a revised minus six for May and the lowest since July 1999.

It was the fifth consecutive monthly drop and added to fears that the eurozone's second largest economy was feeling increasing effects of a US-led global economic slowdown.

Just months ago, economists had said France looked in good shape to resist the slowdown and help the eurozone economy put in a solid performance this year, despite signs of weakness in Germany.

Rate decision

But with data last week showing French unemployment rising in May and business optimism falling, those hopes have been dampened.

Economists said the latest data might encourage the European Central Bank to consider trimming interest rates at its meeting this week.

But the Bank would weigh the need to support economic growth with the desire to keep inflation - which is still above target - under control.

Whether rates would be cut remained a close call, they said.

'Adverse winds'

INSEE is now forecasting the French economy will grow just 2.3% this year.

"After four years of expansion, the French economy is being hit by adverse winds," last Friday's growth report said.

INSEE said the French economy's hopes of avoiding the worst of the slowdown rested on consumer spending holding up, as it appears to have been in the United States.

This view received a lift on Monday, with data showing French new car registrations climbed 20% to a monthly record of 220,401 vehicles in June.

No collapse

Some economists also took comfort from the fact the June drop in consumer confidence had not been as steep as that of the month before.

"The number is quite coherent with our view that with the slowdown in the dynamics of the job market, there is going to be a deterioration in confidence, but there won't be a collapse," said Stephane Deo, economist at UBS Warburg in Paris.

In recent months, several high-profile employers in France have announced job cuts.

They include Danone, Moulinex, Marks & Spencer, Philips and Alcatel.

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