UPDATE 1-French economy dogged by weak spending, fiscal strain

Fri Mar 29, 2013 11:31am EDT

* Consumer spending down 0.2 percent in February

* France misses 2012 budget deficit target (Recasts, adds quotes, details throughout)

By Ingrid Melander

PARIS, March 29 (Reuters) - Bleak French consumer spending and budget deficit data on Friday highlighted the Sisyphean task facing the government, which insists it can meet its pledges to revive growth and the public finances.

President Francois Hollande sought to reassure the public in a TV interview on Thursday that he has the tools to restore France to growth, promising measures to boost consumer spending, which accounts for more than half of the economy.

But data on Friday showed that spending on goods slipped 0.2 percent in February from the previous month, disappointing analysts polled by Reuters who expected a rebound, and following a 0.9 percent drop in January as rampant unemployment and tax rises continued to bite.

"This is the result of very bad consumer morale," said BNP Paribas economist Dominique Barbet, adding that consumption would likely shrink 0.8 percent in the first quarter if March proves as bleak as the past two months.

Consumers spent less on clothing and shoes, which was the main drag on the overall reading, while spending on household goods fell for the second month in a row.

"Households concentrate their spending cuts on everything they can control: cars, clothes, household goods," Barbet said, noting people tend to stick to window-shopping for those goods in hard times or not go shopping at all.

More grim news landed when separate data showed France failed to meet its public deficit target last year, a shortfall that will be hard to make up without a return to growth.

Hollande, whose approval ratings are in tatters 10 months into his term, is battling to revive an economy that has been stalled since mid-2011 and which many expect will struggle to post any growth this year.

Household purchasing power contracted by 0.4 percent in 2012, the first time it has shrunk over a year since 1984, the INSEE statistics office said earlier this weak.

'SO FAR, SO BAD'

France's full-year 2012 deficit came to 4.8 percent of gross domestic product, data showed, down from 5.3 percent in 2011 but missing the government's initial 4.5 percent target.

The finance ministry blamed the overshoot on disappointing growth, a small upward revision to the 2011 deficit, extra contributions to the European Union budget and the cost of recapitalising Franco-Belgian lender Dexia.

The Socialist government warned earlier this year that the deficit might come in at 4.6 percent of GDP due to Dexia.

The even worse result piles fresh pressure on Hollande as his team prepares a new multi-year fiscal plan for mid-April which needs to be solid enough to win him a one-year reprieve on his goal to bring the deficit below an EU ceiling of 3 percent.

Brussels has signalled leniency on the condition that Paris does not slip too far from the target this year and steps up structural reforms. Asked about the issue, Hollande said he hoped to get an extra year but would not take it for granted.

"We need a clear 2013-2014 plan to restore our credibility," said Philippe Waechter, chief economist at Natixis Asset Management. "I don't think yesterday's announcements put us on a path that shows how we will return to growth or create jobs."

Meeting fiscal targets would require significantly cutting spending, Waechter said, noting that he was sceptical despite the government's goal to slash at least 60 billion euros in public spending over Hollande's five-year term. He estimated France would not manage to meet the EU deficit target even in 2014.

BNP Paribas' Barbet said one of the measures announced by Hollande on Thursday, making it easier for employees to use corporate saving plans usually locked up for years, could help boost consumer spending later in the year.

Hollande's carefully stage-managed interview on France 2 failed to convince many, with even the left-wing Liberation mocking his insistence that his government is putting all the tools in place for a recovery to happen.

That amounted to sitting back and waiting for the economy to restart itself, the newspaper said in an editorial, behind a front page headline: "So far, so bad." (Additional reporting by Leigh Thomas and Yann Le Guernigou; Editing by Hugh Lawson)

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