All about business

French consumer confidence fell to a record low, the budget deficit exceeded government estimates and retail sales growth slowed, as accelerating inflation took its toll on the euro region's second-largest economy.

Insee, the national statistics agency, said today its gauge of consumer confidence slipped in March to minus 36, the lowest since it was introduced in 1987. The institute also said the budget shortfall widened to 2.7 percent of gross domestic product last year from 2.4 percent in 2006.

The reports underscore deteriorating public finances and the effect of a U.S. economic slump and global credit squeeze on France, which takes over the rotating European Union presidency in the second half. Finance Minister Christine Lagarde this week cut her 2008 growth forecast to as low as 1.7 percent, compared with an earlier prediction of “close to 2 percent.''

“France is going into the EU presidency with one of the worse growth rates in the euro zone, a public deficit that will be beyond'' the EU ceiling of 3 percent of GDP and debt that breaches EU rules, said Marc Touati, chief economist at Global Equities in Paris.

Insee today confirmed 2007 GDP growth was 1.9 percent last year, down from 2.2 percent in 2006, as the euro and crude oil costs headed toward records. Still, the fourth-quarter's 0.4 percent expansion exceeded an estimate last month of 0.3 percent and the number of jobseekers fell last month.

`Reasonably Healthy'

“There will be some slowdown because of the rising euro and slowing global demand but the economy seems to be reasonably healthy,'' said Dario Perkins, an economist at ABN Amro Holding NV in London. “Although headline inflation isn't very high, people's perception is clearly much worse.''

The fastest inflation in 12 years is squeezing consumers' purchasing power, hurting consumers' confidence, which has been deteriorating since July pay day loan. Retail sales growth slowed in March, with the Bloomberg purchasing managers index falling today to a seasonally adjusted 53.3 from February's 58.8. A reading above 50 indicates expansion.

Voters' worries about the cost of living contributed to President Nicolas Sarkozy's loss in local elections to the Socialist party earlier this month.

More than 80 percent of French people said they saw their purchasing power decline in the last 12 months, according to a poll last month by Paris-based Ifop institute. That was up from 65 percent in November and from 59 percent in January 2007.

That contrasts with Insee's data today showing that household buying power climbed 3.3 percent last year, more than the 2.4 percent of 2006.

“With confidence at a historic low, it's hard to believe that consumer spending won't be affected at all,'' said Nicolas Bouzou, chief executive of research institute Asteres in Paris. “There's a risk for an increase in savings over the next month, which would rein in spending and borrowing.''

The savings' ratio also rose to 16.3 percent from 15.4 percent in 2006, Insee reported today.

In the fourth quarter, companies' profit margins narrowed to 37.5 percent from 37.1 percent, Insee said. Over 2007, it slipped to 37.3 percent from 37.7 percent.

Source