French confidence spikes but oil prices hit German recovery

Tim Wallace
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FRENCH consumer confidence rose to its highest level in more than a year in March, figures showed yesterday, as hopes rose that a change of government in France could boost the economy.

However, German confidence, which has grown strongly in recent months, fell very slightly as worries grew over the increasing price of oil.

German consumer confidence on the Gfk index had been rising steadily from September 2011, but dropped from six to 5.9 in its April reading, figures showed.

“The drop in German confidence illustrates the weak spot of the recent consumption recovery: higher energy prices,” said ING analyst Carsten Brzeski.

“Even if fuel prices only account for roughly five per cent of consumer spending, the recent spike in fuel prices to new record highs has clearly dented confidence.”

However, the March reading was the highest in over four years, showing the economy remains relatively healthy.

Meanwhile in neighbouring France, figures from official agency INSEE showed the largest jump in confidence in five years, hitting 87, up from 82 in February, though it remains well below its long-term average of 100. Some analysts suggested it may be due to expectations President Nicolas Sarkozy (pictured) will be defeated in the upcoming elections.

Meanwhile, the Organisation for Economic Cooperation and Development (OECD) called for a huge expansion of the Eurozone’s bailout fund to calm anxious investors.

The OECD warned that Eurozone finance ministers need to impress markets with the size of their rescue fund for indebted countries when they meet later this week, or risk a resurgence of the crisis that they will be unable to deal with.

The research body’s boss Angel Gurria called for a fund of over €1 trillion but the bloc’s finance ministers look more likely to agree to a level nearer €700bn (£835bn) when they meet on Friday in Copenhagen, and described such a fund as “the mother of all firewalls”.

Troubled Eurozone states Italy and Spain comfortably sold new debt yesterday in a sign of market approval for the two countries’ efforts to deliver pledged reforms.

Italy sold €3.8bn of zero-coupon two-year bonds, near the top of its target range, with the yield falling to 2.35 per cent - the lowest since November 2010 .

Spain sold €2.6bn of short-term treasury bills, with demand proving healthy despite lingering market concern about the country’s ability to slash its public deficit.