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To: Box-By-The-Riviera™ who wrote (174286)	6/21/2002 9:47:37 AM
From: Haim R. Branisteanu	Respond to of 436258

Europe recovery clouded just as France needs growth June 21, 2002 08:24 AM ET By Swaha Pattanaik BRUSSELS, June 21 (Reuters) - Waning business confidence in Italy and a sharp drop in French consumer spending cast a pall over euro zone economic prospects on Friday just as France made a pledge to wipe out its budget deficit contingent on growth. French consumers, the driving force behind recovery in the euro zone's second largest economy, spent 1.3 percent less in May than they had the previous month, according to a report which was far weaker than financial markets had expected. It prompted analysts to question whether France could manage three percent growth next year. This was the condition it put forward early on Friday at a meeting of European Union finance ministers for its budget to balance in 2004, a goal the previous socialist-led government had promised it would achieve as part of the EU pact on budgetary rigour. Data from Italy, the euro zone's third largest country, added to the gloom, showing business morale unexpectedly fell to 95.3 in June from May's 16-month high of 97.5. "The euroland recovery seems to be weaker than previously expected," said John Hawksworth, head of the macroeconomics unit at PricewaterhouseCoopers, whose current forecast is for 2.5 percent French growth in 2003. "It is too early to say whether this is a trend in France, but we are not expecting them to balance the budget by 2004 -- they would have to climb a mountain to get there and it seems implausible they will manage it." BUFFER WEARING THIN Analysts said the French data heralded a longer-term fall in household spending, which has acted as a buffer for the economy against a drop in foreign demand for its exports seen in the wake of the September 11 attacks on the United States. Revisions to last month's French spending data did not help matters. The French national statistics office put the monthly increase for April at 0.6 percent, rather than the 0.8 percent gain it had previously reported. "All of this indicates that consumer spending is on a downward trend," said Emmanuel Ferry, economist at Exane. "It is proof that consumer spending is at a turning point as all the pillars that have supported it since 1998 fall away, namely employment, salaries, tax cuts, and disinflation." The spending figures appeared at odds with previously released data showing consumer confidence scaled its highest level this year in May. But analysts said confidence is more likely to fall back than spending to rise. "Consumer morale rebounded very strongly in May due to an election effect, but it is a superficial recovery and there should be an alignment of confidence figures with consumer spending in coming months," said Olivier Gasnier, economist at Societe Generale. French presidential and parliamentary elections have both resulted in victories for the centre-right and blunted the threat to the conventional parties from the extreme rightists of Jean-Marie Le Pen's National Front. EVERYONE HAS THEIR OWN WOES France's trading partners in the euro zone, such as neighbouring Italy, have their own problems. The head of Fiat Auto, the car division of Italy's largest manufacturer, said on Friday domestic car sales would be lower in the second half of 2002 than they were in the first half. And Paolo Fresco, chief executive of the whole Fiat group FIA.MI , said he expected car demand in Italy to fall 15 percent in 2002 while it would fall five percent across Europe. Gloom is not just confined to one company or sector, with the latest Italy business confidence data reflecting weakness across consumer, intermediate and investment goods. Analysts took it as a sign that the Italian economy is struggling to build the momentum necessary for a recovery. "This is the first time this year that industrialists' join consumers in their bleak confidence over the national economic outlook," said Natalia Bailey, an analyst at 4CAST in London. News of weaker business sentiment comes just two days after a report showed consumer confidence fell to a two-year low in June as ordinary Italians worried about persistent inflation and the impact of slower growth on jobs. "Unless industrial production shows clear signs of a rebound in the next few months, GDP (growth) might end up growing by even less than our subdued 1.1 percent 2002 estimate," Bailey said. The Italian government's official target of 2.3 percent growth for 2002 is well above those of independent economists, most of whom expect growth of between 1.2 and 1.4 percent. (with reporting by Joelle Diderich and Glaieul Mamaghani in Paris and Luke Baker in Rome)