French morale hits record low, state coffers set to suffer

French consumer confidence has hit an all-time low just as the state auditor warned that a likely economic contraction would knock the government off-course from this year’s deficit reduction target. June consumer confidence fell to the lowest level since records began in 1972 and households are more pessimistic than ever about their future living standards, according to an index released yesterday by national statistics institute INSEE. The trend suggests that Europe’s second-biggest economy, hit by lagging trade competitiveness and caught in a shallow recession, will not be able to count on its traditional driver of consumer spending to rebound. The European Commission’s June economic morale index for the eurozone yesterday also showed French consumer morale falling, to -30.9 from -29.9, lagging other sectors of the country’s economy. The overall index for the eurozone, which also covers industry and services, hit its highest level in over a year. France’s Cour des Comptes, a quasi-judicial body that oversees state accounts, warned in an annual review that with the public spending deficit heading for nearly 4% of economic output this year, missing a 3.7% official target, structural reforms must be implemented immediately to cut spending. “Large doubts weigh on the flow of corporate and sales tax revenues,” the auditor said in its 250-page review. The body’s president, Didier Migaud, told lawmakers as he presented the document that “reforms enabling a reduction in the weight of public spending seem more necessary than ever.” French GDP shrank 0.2% quarter-on-quarter in the first three months of the year, INSEE data confirmed this week. The government sees full-year growth at 0.1%, but INSEE and the European Commission both forecast a 0.1% drop. The June consumer confidence index came in at 78, three points below analyst expectations of 81 and far below a long-term average of 100, data from statistics office INSEE showed.