By Joshua Kirby
French consumers are feeling less confident about their prospects amid surprise elections, a fresh headwind for the country's fragile economic recovery.
A measure of confidence compiled by France's statistics agency fell to 89 in June from 90 in May, according to a survey released Wednesday, in which a reading of 100 represents the long-term average for consumer sentiment. Consumers reported worsening feelings for the quality of living in France in the months ahead, as well as for their own future savings' prospects and willingness to make major purchases.
As in other parts of Europe, household confidence was shattered by Russia's invasion of Ukraine early in 2022. But sentiment had been improving this year as price rises slowed and incomes began to increase again in real terms. More confident households tend to spend more freely, and a pickup in consumer spending supported growth in each of the last three quarters.
The fresh slide in confidence comes after President Emmanuel Macron earlier this month plunged France into political turmoil by dissolving the National Assembly and calling fresh elections for the legislature, in response to a heavy defeat for his party in elections for the European parliament.
The result of the new vote--with a first round due this Sunday and the second a week later--is far from certain. But Macron's party looks likely to be toppled from its place as the largest grouping in the assembly, raising the prospect of a "co-habitation" in which the president is forced to appoint a prime minister from a rival party.
That could be Jordan Bardella, candidate for the far-right National Rally, whose leading figure Marine Le Pen came in second place in the last two presidential elections. Bardella has promised to crack down on immigration, including by deporting foreign criminals and banning French citizens who hold dual nationality from "strategic" jobs. But Macron's party is also trailing in the polls behind the New Popular Front, a left-of-center alliance that includes the green party as well as communists and firebrand Jean-Luc Melenchon's France Unbowed party.
Across the border in Germany, consumers have also become gloomier this month, unexpectedly ending a four-month streak of brightening sentiment. Like Macron, German Chancellor Olaf Scholz suffered a setback at the European elections as his party fell behind the far-right Alternative for Germany. Uncertainty in Europe's largest economy seems not to have been cleared by excitement around the European soccer championships that started there this month, said Carsten Brzeski, macro chief at bank ING.
"Not even the football can overcome Germans' caution," Brzeski said in a note.
Worsening sentiment among French and German households contrasts with a brighter mood among their U.K. counterparts. That country is also set to hold parliamentary elections early next month.
But in contrast to France, the outcome seems more easily predictable with opinion polls pointing to a large majority for the opposition Labour Party. Confidence among U.K. consumers improved this month after Prime Minister Rishi Sunak called the surprise elections, according to a survey published last week by research group GfK.
The decline in French consumer confidence follows the release of a survey of businesses last week that pointed to a decline in activity during June as new orders were put on hold pending the outcome of the election. Investors have also been spooked by the vote, with the risk premium on French government bonds rising relative to their European peers.
National Rally's success in European elections is no guarantee of a strong showing at the national level, said Patrick Barbe, fixed-income head at Neuberger Berman. But if the eurosceptic group were to form a parliamentary majority, the shockwaves could be serious both for France and the wider eurozone, he said in a note.
Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby
(END) Dow Jones Newswires
06-26-24 0345ET
