Line chart of Monthly index (100 = long run average) showing French consumer confidence slides

French consumer confidence takes a fresh hit

French consumer confidence declined in July, denting hopes that the country’s economy would bounce back rapidly from the coronavirus crisis.

After an initial rebound in June, the French statistics agency’s consumer sentiment index fell by two points to 94 in July, below the average of 99 forecast by economists in a poll by Reuters.

A score below 100 indicates that consumer confidence is lower than its long-term average, whereas a score above that mark suggests that sentiment is above average.

French households felt their personal financial situation was deteriorating and did not believe now was a suitable time to make big purchases, the national statistics agency Insee said. The share of French households who thought it was better to save than to spend increased for the third consecutive month.

Fears about unemployment have decreased slightly but remain well above the long-term average. Fewer French households believe the standard of living in the country has improved during the past year.

Jessica Hinds, an economist at Capital Economics, said: “Households’ unemployment expectations remained very high, suggesting that the extension of the temporary unemployment scheme has done little to reassure employees about their job prospects, even as economic activity has improved.”

Julien Manceaux, senior economist at ING, said that “removing all doubts from consumers will take time”.

“The main component holding back household confidence to return to the high levels of the beginning of the year is their fear of unemployment,” he said.

The autumn could see a further dip in confidence, he added: “Once the holidays are over and with it the euphoria of renewed freedom of movement, (consumers could) return to more cautious saving and consumption behaviours after the summer.”

Daniela Ordonez, chief French economist at Oxford Economics, said the French government could do more to help rebuild consumer confidence.

“The recovery package presented by the French government is very much supply-oriented, and contrasts strongly with the German package which is clearly supporting demand,” she said, referring to Germany’s temporary cut in value added tax.

“While helping the most affected industries is certainly positive, some demand-oriented measures might be needed to ensure the recovery of French consumer confidence and domestic demand,” Ms Ordonez said.

Line chart of Retail sales (annual % change) showing Spanish shoppers still cautious about spending

Meanwhile in Spain, the tourism industry’s woes contributed to a sluggish recovery in the nation’s shops. The retail sector experienced a 17.8 per cent month-on-month increase in sales turnover in June, but sales remained 4.7 per cent below their level in the same month last year.

Sales had been held back because tourism remained well below normal levels and a large share of workers were still working from home, the Spanish National Statistics Institute (INE) said.

Areas that are most dependent on tourism suffered the largest retail sales falls, with year-on-year declines of 21 per cent in the Balearic Islands and 11.9 per cent in the Canaries.

Angel Talavera, head of Europe economics at Oxford Economics, said the increase in coronavirus cases in Spain in the past couple of weeks was likely to hold back the retail recovery further.

“We expect that growth will moderate substantially from here on as consumers are likely to remain cautious about their prospects, especially given the deterioration in the health situation,” he said.

Data published on Tuesday showed that Spanish job losses hit a record high in the second quarter, with more than 1m people falling out of employment. Capital Economics’ Ms Hinds warned that, given the employment data and the fresh restrictions on travel to Spain, “we have probably seen much if not all of the likely recovery in spending”.