French consumer pulls back even before coronavirus outbreak - Metro US

French consumer pulls back even before coronavirus outbreak

PARIS (Reuters) – French consumer spending fell unexpectedly sharply in January, official data showed on Friday, flagging a weak start to the year even before the coronavirus outbreak began taking its toll.

The INSEE official stats agency said consumer spending, the traditional motor of the euro zone’s second-biggest economy, fell 1.1% in January from December.

The drop crushed the average forecast for an increase of 0.1% in a Reuters poll of 14 economists in which none had expected anything lower than -0.6%.

INSEE blamed much of the decrease on a sharp drop in sales of new cars as a government scheme to increase the price of more polluting vehicles took effect in January.

As a result, the sale of transportation goods plunged 7.1% from December when it had increased 2.4% before the scheme took effect.

While the January weakness was concentrated in car sales, the economy increasingly faces a broader challenge from the coronavirus outbreak, which the government estimates could shave 0.1 percentage points from its 2020 growth forecast of 1.3%.

The brunt of the impact is likely to be felt in the first quarter, which could become the second successive quarter of contraction, putting the country into recession.

INSEE confirmed on Friday its preliminary assessment that the economy had shrunk 0.1% at the end of last year, when business activity was hit by a series of transport strikes.

As the disruption hit supply chains, companies had little choice but to draw down inventories rather than producing new goods, which weighed heavily on overall activity.

INSEE said consumer spending growth slowed in the fourth quarter even though households’ disposable income grew 0.7%. However, households saved the extra income, pushing up the savings rate to 14.9% from 14.5% in the previous quarter.

(Reporting by Leigh Thomas; editing by Philippa Fletcher)

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