French consumer confidence fell in December to its lowest level in a year according to a new report, in a setback for the euro zone's second biggest economy as it struggles to pick up from a soft patch.
National statistics office INSEE said its consumer confidence index fell to minus 25 from a confirmed reading of minus 23 in November, falling below the mid-range estimate in a Reuters poll of economists for a reading of minus 22.
The news chimed with a report last month showing French business morale fell in December and bucked the upbeat tone of a survey published yesterday, which showed growth in France's services sector accelerated in December.
Consumer spending is traditionally the main driver of growth in France. But figures on Tuesday showed the economy stagnated in the third quarter of 2004 as households cut back their spending and business investment dropped.
The growth rate of 0.0 per cent in the July-September period was the weakest performance in more than a year by the French economy, the euro zone's second largest after Germany.
France's conservative government has forecast growth of some 2.5 per cent last year and this year, but economists say this is over-optimistic as high unemployment is restricting household spending and the euro's strength hurting businesses.
INSEE last month cut its forecast for French 2004 growth to 2.1 per cent from 2.4 per cent. The Bank of France has also scaled back its 2004 growth estimate to 2.2 per cent.
Illustrating the impact of the euro's strength on businesses, French catering group Sodexho Alliance posted a 1.6 per cent fall in first-quarter sales on Wednesday as currency movements pounded underlying growth.
Sodexho generates 44 per cent of its sales in the United States, so the strength of the euro hits its earnings hard.