French Consumer Spending Drops As Car Sales Plunge

Sponsored Links

French consumer spending declined for the first time in five months in January as car sales plunged after increases in previous two months, data released by Insee showed Tuesday. At the same time, inflation accelerated.

Households consumption in manufactured goods decreased 2.7% month-on-month in January, reversing a downwardly revised 1.3% rise in December. Spending dropped more than the expected 1.1% fall. Compared to the previous year, expenditure rose 1.5%, much slower than December's growth of 5.8%.

The monthly fall in consumer spending was disappointing, said Jennifer McKeown, Senior European economist at Capital Economics. The decline was led by a sharp drop in car sales, by 16.7%, as the government reduced car scrappage incentive to EUR 700 from EUR 1000 in January. The government is set to cut the subsidy again in the second quarter of this year and would remove the scheme in the third quarter, suggesting further drop in car sales.

"The real test for consumer spending will then occur only when the plan will be removed entirely in 2011," ING Bank economist Oscar Bernal said in a note. So far, the French version of the cash for clunkers program allowed more than 300,000 new cars to be bought and the government plans to remove it only gradually to avoid a major market correction.

Details of the consumer spending report showed that expenditure on durables fell 7.8% month-on-month, of which spending on household durables rose 1.3%, textile-leather grew 1.6%, while that on other manufactured goods dropped 0.4%.

"Today's data are consistent with our view that the recent strength of French GDP growth at the end of 2009 is likely to reflect temporary factors, rather than a sustained rebound in growth," said Colin Ellis, European economist at Daiwa Capital Markets Europe.

In the fourth quarter of 2009, the French economy expanded at a faster pace of 0.6% sequentially, compared to third quarter's 0.2% growth. Fourth quarter GDP data showed household spending growth accelerated to 0.9% from 0.1% recorded in the third quarter.

Separately, the statistical agency said the French consumer price index rose 1.1% year-on-year in January, faster than December's 0.9% rise. That was in line with the consensus forecast. Consumer prices dropped 0.2% month-on-month, reversing an increase of 0.3% in December. Prices fell less than the expected 0.3% decline.

The harmonized index of consumer prices climbed 1.2% annually, more than the 1% increase recorded in December. On a monthly basis, the index fell 0.2%.

"We continue to expect annual inflation rates to stabilize over the next few months, before falling back during the rest of 2010," Ellis said.

Excluding tobacco, the CPI fell 0.2% month-on-month and rose 1% over the previous year. Adjusted for seasonal variations, consumer prices grew 0.4% on a monthly basis and 1.2% annually.

(Market News Provided by RTTNews)