Energy bills push up French consumer spending

Tuesday 24 December 2013 10.42
Spending on manufactured goods rose by just 0.1% last month
Spending on manufactured goods rose by just 0.1% last month

Cold weather pushed up French consumers' heating bills last month but their spending on other goods stagnated, while firms saw their profit margins squeezed to their tightest in nearly 30 years due to higher taxes and weak growth.

With a cautious eye on near record unemployment of 10.9%, consumers appear reluctant to play their usual role as the motor of French growth.

Meanwhile businesses have been unable to take up the slack in Europe's second-biggest economy.

Overall consumer spending rose 1.4% last month, driven up by a 7.5% rise in energy bills in colder weather, INSEE statistics agency figures have shown. 

That was well above economists' average estimate for a rise of only 0.4% as polled by Reuters.

Spending on manufactured goods rose just 0.1%, however, as households avoided big purchases amid high unemployment and dwindling purchasing power.

In a separate report on third-quarter economic output, INSEE said households' real gross disposable income fell 0.1% in the third quarter, pinched by a rising tax bill, while their savings rate remained high at 15.6%.

With higher taxes and welfare contributions hitting businesses, the corporate sector saw profit margins fall to 27.7%, the lowest level since the end of 1985.

The report also confirmed that the economy shrank 0.1% in the third quarter, although INSEE revised up its second-quarter reading to a growth rate of 0.6% from 0.5%.

The agency estimated last week that the economy rebounded slightly in the final three months of the year with growth of0.4%.

It forecast however that growth would be too weak to get unemployment firmly on a downward trend as President Francois Hollande has promised to do.

With his economic credibility on the line with voters and EU partners, Hollande is struggling to rein in the public finances in the face of lacklustre growth and high unemployment.

In rare good news on that front, data from INSEE showed that the public debt eased in the third quarter to 92.7% of gross domestic product from 93.5 at the end of the previous three months.

The government expects the public debt to reach 93.4% of GDP this year before peaking at 95.1% next year.