France: Still waiting for an upturn in consumer spending – BNP Paribas

Hélène Baudchon, Research Analyst at BNP Paribas, suggests that with spending almost flat in the first quarter, purchasing power falling significantly and confidence waning further in June, the latest data regarding French consumers do not make pleasant reading.

Key Quotes

“The fall in the purchasing power of disposable personal income is down to the specific timing of tax measures in the 2018 budget.”

“The good news is that the personal saving rate has played its role as a buffer: by reducing their savings, consumers have avoided reducing their spending, despite purchasing power losses.”

“The decline in consumer confidence in the first quarter, more specifically in February, was also down to these tax effects. Afterwards, we expected consumer confidence to resume its rise, thanks to the improving labour market. However, we are still waiting for that to happen.”

“Higher inflation is another negative factor, which brings us to the question of the outlook for consumer spending.”

“We would be less concerned by a rise in core inflation, which would signal strong momentum in growth and wages.”

“On the upside, the labour market is improving, although evidence of a more tangible positive impact of this improvement on consumption is still lacking so far.”

“In addition, from the end of 2018, consumers’ disposable incomes and spending should receive a significant boost from planned tax cuts, that is the scrapping of employee health and unemployment insurance contributions and a reduction in housing tax.”

“To sum up, we have no doubts that consumer spending will pick up by the end of the year; the only question is by how much.”