April 30, 2013 / 1:55 PM / 7 years ago

UPDATE 2-Empty shops, tight wallets threaten France with recession

* Consumer spending down 0.4 pct q/q, up 1.3 pct m/m

* Consumers worried over record unemployment

* Spending accounts for 56 pct of French GDP

By Ingrid Melander

PARIS, April 30 (Reuters) - French consumers bought fewer cars, tables and chairs, and clothes in the first part of the year, challenging the government’s pledge to steer the euro zone’s second largest economy away from recession.

Consumer spending accounts for more than half of France’s output and is the motor of the economy. It fell last year for the first time in 19 years.

Record unemployment is still pushing households to keep their wallets closed. An unexpected rebound in March, largely due to heating staying on through cold weather, was not enough to stop a 0.4 percent January to March quarterly decline.

The data prompted Jacques Creyssel, head of the FCD business federation, to warn of a fresh contraction in purchasing power this year. He called the March rebound of 1.3 percent “technical.”

Philippe Waechter, chief economist at Natixis Asset Management, agreed. “Household consumption will remain lifeless this year and I wouldn’t expect much change next year,” he said.

An opinion poll showed last week that 77 percent of people reckon their purchasing power will contract this year after shrinking in 2012 for the first time in nearly 30 years. Some 58 percent of respondents plan to cut spending in the coming months, the Mediaprism survey showed.

Even sectors which have long been more resilient are also feeling the pinch, with 40 percent of respondents saying in the survey that they will spend less on food.

“We are in a particularly difficult time for consumption, including for food,” Creyssel said. His federation represents France’s major retailers including Carrefour and Casino.


The hushed alleys of a large mass-market furniture shop on the edge of Paris are indicative of the dearth of spending by households who are cutting back on all but the essentials.

“This place should be swarming with people on a Saturday, and there’s no one,” said vendor Hamid Ouafai, looking around, on a recent weekend, at the piles of boxes, lamps and chairs standing untouched around him in the Fly furniture shop.

A quick look at his computer just before 2 pm that day told Ouafai that his section of the shop has grossed about 1,500 euros so far, far from the target, already revised down, of 7,000 euros for the day.

“People don’t have money to spend anymore ... These are not happy days,” he said shaking his head.

The household savings rate will be key to how consumption fares this year after the drop in consumer spending last year was mitigated by people digging into their savings.

“Will it be the same in 2013? Looking at 2012 we would hope so but there is a risk. If households get more worried about unemployment or worry that more tax increases could come they could increase rainy day savings,” said Cedric Audenis, head of economic forecasting at INSEE.

“We would rather expect a growth rebound to come from abroad, because our partners like Germany and the United States have better fundamentals and, at home, we don’t expect a rebound either from consumption or business investment,” he said.

The government forecasts that household consumption will barely grow - by 0.2 percent overall - this year and contribute to keeping the economy just out of recession.

But many economists view the forecast as too optimistic and instead predict a slight contraction.

In contrast, in EU powerhouse Germany, criticised in France for insisting on euro zone-wide austerity, consumer morale rose to its highest since October 2007, data showed.

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