Unemployment, energy costs hit French February consumer spend

March 22 | Updated: Mar 23 2005, 05:30am hrs
Consumer spending in France, Europe's third-largest economy, probably fell for the second time in three months in February as unemployment and energy costs rose, a survey of economists showed.

Spending on manufactured goods may have dropped 0.5 percent from January, when it rose 1.5%, according to the median of 28 estimates in a Bloomberg survey.

French joblessness reached a five-year high of 10.1% in January, curbing spending and hurting sales at companies such as Galeries Lafayette SA, France's biggest department-store operator. A slowdown in household purchases may crimp the economy's expansion this year.

Unemployment remains high and rising oil prices erodes households' purchasing power, said Olivier Gasnier, an economist at Societe Generale in Paris.

A 38% increase in oil prices this year and the euro's 7% appreciation against the dollar in the past six months threaten to crimp domestic spending and exports in the euro region. Finance minister Thierry Breton cut France's 2005 growth forecast on March 16.

The economy may expand by as little as 2% this year, compared with the previous estimate of 2.5% and with 2.3% growth last year, according to Breton. Germany, France's largest trading partner, may trim its 2005 growth forecast for the fourth time in a year to 1% from 1.6%, a government official who declined to be named said March 9.

If the unemployment rate doesn't fall and if the German economy doesn't improve, it will be dangerous for spending in coming months, said Maryse Pogodzinski, an economist at JPMorgan Chase.