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Last Updated: Thursday, 30 June, 2005, 10:17 GMT 11:17 UK
French consumer confidence slumps
Shop floor at Galeries Lafayette in Paris
France's economy is 'fragile'
Falling consumer confidence in France has underlined the problems facing new Prime Minister Dominique de Villepin as he tries to revitalise the economy.

Consumer confidence was worse than expected in June, while the unemployment rate refused to budge from a five-year high.

Unless the job situation improves, economic growth is unlikely to pick up and may even slow, analysts warned.

Separately, a fall in Germany's jobless rate was attributed to summer hiring.

The seasonally-unadjusted jobless rate dipped to 11.3%, but the German Labour Office made clear that this figure reflected seasonal factors, not an improving economy.

Earlier this year, the German jobless rate reached 12.1%, with more than five million people out of work, the highest level of unemployment since the 1930s.

French woes

According to French statistical office Insee, its index of consumer confidence fell to minus 30 in June.

Analysts had expected that it would be unchanged from May's figure of minus 29.

France's unemployment rate stayed at 10.2% for the third month running in May, the Labour Ministry said.

There was one bright spot when Insee revised its economic growth figures for France's first quarter to 0.3% from 0.2%.

However, this did little to lift the spirits of analysts.

"Even after the slight upwards revision, growth in the first quarter marks a sharp break with the end of 2004," said Nicolas Claquin of HSBC.

"The second quarter will doubtless be no better and growth for the year will be no more than 1.5%," he added.

French action

In his first policy speech earlier this month, Prime Minister Villepin said that job creation was key to getting France's economy back on track.

He promised to suspend income tax cuts and to use the money to fund job creation instead, to cut red tape for small businesses and make it easier to hire and fire staff.

"They will help in the short term but they don't really address the long-term structural problems," said Audrey Childe-Freeman at CIBC World Markets. "The unemployment rate is unlikely to fall very quickly."

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