French Consumer Spending Rises as Inflation Slows

By Helene Fouquet

Dec. 23 (Bloomberg) -- French consumer spending unexpectedly rebounded in November as stimulus measures and declining energy prices cushioned the impact of deteriorating economic growth.

Spending by consumers, which accounts for about 15 percent of the economy, increased 0.3 percent from November, when it fell a revised 0.5 percent, Insee, the national statistics office in Paris, said today. Economists expected a 0.2 percent decline, the median of 17 estimates in a Bloomberg survey showed. From a year earlier, spending rose 1 percent, accelerating from the revised 0.6 percent gain in October.

With oil prices retreating from their July peak and inflation slowing, consumer spending helped France dodge a recession in the third quarter. The cost of a barrel of oil is down 70 percent from its mid-summer record and French inflation slowed to 1.6 percent last month. President Nicolas Sarkozy’s 26 billion-euro ($37.5 billion) stimulus package may combine with the lower inflation rate to support economic growth.

The slower price growth “freed some purchasing power for consumers,” Mathieu Plane, an economist at Paris-based Observatoire Francais des Conjonctures Economiques, said in an interview with Bloomberg Television. “But in the long run, even with inflation falling near to zero next year, it won’t be enough to compensate for the loss of jobs and revenue.”

Gross domestic product will probably decline 0.8 percent this quarter, the most since 1974, after a 0.1 percent increase in the three months through September, Insee economists forecaset on Dec. 19.

Full-Year Contraction

The economy will shrink 0.4 percent in the first quarter, and 0.1 percent in the following three months, Insee predicted. OFCE’s Plane said he expects a full-year contraction of 0.4 percent in 2009, adding that France faces the risk of deflation, “which has to be avoided absolutely.”

Spending on cars in France declined 2.1 percent in November from the previous month, and purchases of clothes and leather goods dropped 1 percent, compared with a 0.6 decline in October, Insee said today. Spending on home appliances and furniture rose 3.4 percent after rising 0.2 percent the month before.

European car sales plunged 26 percent in November, the biggest monthly drop since 1999. Automakers Renault SA and PSA Peugeot Citroen are cutting jobs and idling plants to confront the slump. Valeo SA, France’s second-biggest maker of auto components, yesterday said it will eliminate 1,600 positions.

France has pledged 1 billion euros of low-interest loans to carmakers’ financing units, of which 779 million euros has already been paid out. The government is also funding 220 million euros in sales incentives on new cars and 100 million euros in assistance to smaller auto-parts suppliers.

To contact the reporters on this story: Helene Fouquet in Paris at Hfouquet1@bloomberg.net.