France: Consumer confidence reaches new highs - ING

Julien Manceaux, Senior Economist at ING, notes that in France, consumer confidence reached its long-term average for the first time in ten years in January.

Key Quotes

“If the improvement has been continuous in recent months, January’s level shows particularly low unemployment fears and high purchasing intentions, a sign that consumer spending is more likely to recover in the first quarter.”

“In France, consumer confidence reached 100.1 in January, symbolically getting back to its long term average. It is the first time since 2007 that French consumers have been that positive about the future. Consumer confidence has been improving since mid-2014, but it took until recently to see all components improving. In January, consumers were particularly optimistic on the future of unemployment and on their purchase intentions, although their current capacity to save remains limited. This optimism contrasts with the low rate of job creations observed in the fourth quarter of the year though, which means that the improvement in short-time work or subsidized contracts had a positive impact on sentiment despite creating only limited purchasing power.”

“Household confidence is also good news for the building sector which has been recovering for several months, on the back of low interest rates and higher confidence. Also, the rebound in purchase intentions could be positive for private consumption in 17Q1,  though retail sales stagnated in 16Q4 despite higher confidence. Finally, the ECB will probably take note that inflation expectations have not been as high since mid-2013 in the second Eurozone economy: if inflation was only 0.2% in 2016, we expect it to rebound to 1% in France this year.”

“All in all, if this is another significant improvement (business confidence rebounded as well and industrial production was remarkably strong in 16Q4), there is still some way to go before to label it a full-speed recovery. However, these more positive signs have been awaited for a long time. If they are too late to save President Hollande’s legacy, they are a strong starting point for the next French president. As reform agendas are ambitious on the centre-right, they could build up from this better starting point to accelerate French GDP growth in 2018 (barring a surprise election outcome of course).”