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  • Jan 8th, 2004
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Signs mounted on Tuesday that Europe's revival suffered a mild hiccup in December with news that economic sentiment in the euro zone witnessed a slight setback and French consumer morale failed to improve.

The sobering statistics followed surveys on Monday showing that expansion in the key services sector moderated last month in both the euro zone and Britain, although it was still consistent with a return to modest economic growth.

"Everyone is talking about a recovery, but it remains very weak," said Natexis Banques Populaires economist Marc Touati, reacting to news that French consumer sentiment came in at minus 30 last month, unchanged from December and near a six month low.

Meanwhile, the European Commission said its overall index of morale in the eurozone declined to 95.6 from 96.0, revised from an original 95.9, in November.

It said confidence within industry had slipped after a continuous rise since the summer.

However, consumer confidence remained steady across the 12-nation bloc with growing optimism about the overall economy contrasting with a more pessimistic view of peoples' own financial situation.

Although industrial confidence slipped to minus eight from minus six, the Commission noted it was still above any level seen in the last 30 months and very close to its long-term average.

The confidence of consumers was unchanged at minus 16.

Economists polled by Reuters had produced a consensus forecast for the overall sentiment index of 96.15, with readings of minus six expected for industrial confidence and minus 15 for consumer sentiment.

A separate Commission survey of the business climate in December showed a similar trend.

The Business Climate Indicator (BCI) eased to 0.01 from 0.05 in November, which was revised up from an originally reported 0.02, due to a worsening in managers' opinion about production expectations and finished stocks.

In November the indicator had turned positive for the first time in 2-1/2 years.

The French consumer confidence index figure of minus 30, produced by national statistics office INSEE, was below expectations.

Economists polled by Reuters had given a mid-range forecast of minus 29. Before November, the index had not been lower than minus 30 since March, when it was minus 31, its lowest since May 1997.

"Even if there is a recovery in 2004, it's clear that it will be a very weak one because there is still no investment and therefore no job creation," said Touati.

The reading, a pointer to likely trends in consumer demand and economic growth, came on the day that stores began offering big price cuts in January sales after a lacklustre run-up to Christmas, when they had already begun offering discounts.

It contrasted with figures released last month showing business morale jumped in December to a two-and-a-half year high.

"The improvement in the international economy is not benefiting consumers (in France) because companies are in a restructuring phase, which is resulting in lay-offs," said Emmanuel Ferry, economist at investment brokerage Exane.

He expected economic growth of just 1.0 percent in France this year, below the government's forecast of 1.7 percent.

The latest data followed the publication on Monday of surveys of the services sector in the United States, eurozone and Britain which all showed a slowdown in expansion in December compared with the previous month.

The eurozone business activity index slipped to 56.6 from November's 37-month high of 57.5, still well above the 50 level which marks the line between expansion and contraction.

Copyright Reuters, 2004


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