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Tuesday, 2 October, 2001, 12:59 GMT 13:59 UK
French consumer confidence tumbles
Paris shop
Consumer caution is rising along with unemployment
Consumer confidence in France has fallen to its lowest level since late 1998, according to a government index which dropped for the seventh time this year.

Economists say rising unemployment is taking its toll on French consumers' willingness to spend.

The September survey did not fully reflect the impact of the attacks on the United States as 44% of those questioned were questioned before 11 September.

But economists said the prospect of slower spending in France was likely to increase pressure on the European Central Bank (ECB) to stimulate eurozone growth with a further cut in interest rates.

The Bank's rate setting body next meets on 11 October.

The index of French consumer confidence slid to minus 15 in September, down from minus 10 at the last survey in July, according to national statistics bureau Insee.

Job and tax fears

Economists had been expecting the decline and predicted it could steepen in the run up to the 2002 general election because of uncertainty about tax policy.

"We expect further deterioration in the coming months...People expect the new government that will be elected next year to be pushed into raising taxes," said Exane economist Emmanuel Ferry.

"Consumer confidence should fall over the coming months," agreed David Naude of Deutsche Bank, pointing out that the full impact of 11 September remains unclear.

Home-grown problem

Economists stressed domestic factors alone would be sufficient to push the index lower as unemployment hit 9% in August, its highest level for nine months.

Big name French companies that have announced job losses and layoffs recently include car-maker Renault, advertising firm Havas - trimming 5% of its workforce - plane maker EADS, and Air France.

A potential buyer has emerged for Marks & Spencer's 18 French stores, though Galeries Lafayette has not yet spelt out the implications of its bid for the stores' 17,000 staff, who have mounted a high profile campaign to save their jobs.

The Insee survey showed an increase in respondents expecting unemployment to worsen. The question produced an index reading of 49, up from 38 in July.

The ECB last cut rates in the immediate aftermath of the attacks on the United States, trimming by half a percentage point to 3.75%, outside its normal schedule of meetings.

Economists were expecting the US central bank to announce later on Tuesday that it was cutting rates for the ninth time this year.

See also:

31 Aug 01 | Business
New rise in French unemployment
01 Oct 01 | Business
French store makes move on M&S
25 Sep 01 | Business
G7 forecasts delay to US revival
25 Sep 01 | Business
Business gurus warn of US recession
29 Jun 01 | Business
France's jobless rises again
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