French consumer confidence worsened unexpectedly in February as households fretted about their finances, adding to doubts about the strength of the economic recovery in the first quarter.
The confidence index dropped to -33 from a downwardly revised -30 in January, statistics office INSEE said on Thursday, confounding expectations for an improvement to -28.
The data followed the steepest drop in consumer spending in two years in January, and an unexpected fall in German business confidence, all implying there will be practically no euro zone growth in the first quarter.
"It will probably be only marginally positive," said Deutsche Bank economist Gilles Moec. "We are expecting 0.2 per cent in the euro zone but the risk is to the downside."
Analysts in a Reuters poll on February 9th expected a 0.3 per cent expansion in the region in the January to March period.
The euro zone grew 0.1 per cent in the fourth quarter of last year, hurt by stagnation in Germany but helped by 0.6 per cent growth in France. However, the French growth was largely driven by consumption and today's report showed this was losing steam, hurt in part by the phasing out of a car scrappage subsidy.
"There has been quite a significant rise in household spending, helped by the car scrappage scheme, and now, with the debate on pension reform that is going on, people face the prospect on a long-term deterioration in their capacity to save," said Olivier Gasnier, an economist at Societe Generale.
The outlook for personal finances fell to -12 from -10 in January, INSEE said, while future capacity to save plunged to -10 from -3.
The consumer confidence report showed that French people were less worried about unemployment. Nevertheless, France has faced a wave of strikes in recent days as workers fret about their jobs.
France's headline unemployment total rose by 19,500 in January, up 0.7 per cent from the previous month, as the labour market continued to worsen.
Furniture maker IKEA's French unit and oil major Total have both been hit by strikes recently. Yesterday, thousands of pensioners took to the streets to protest against president Nicolas Sarkozy's planned reform of the costly pension system.
A separate report today showed tight consumer budgets could be hurt further by inflation in months to come. Factory gate prices rose 0.7 per cent month-on-month, INSEE said, easily surpassing the forecast for a rise of 0.3 per cent.
Reuters