French consumer spending declined more than expected in February, while business confidence remained at a record low level in March, official reports showed Tuesday.

Household consumption expenditure in manufactured goods decreased 2% month-on-month in February after rising 1.7% in January, the statistical office INSEE said. The decline was twice quicker than the expected fall of 1%.

Expenditure in durables fell 0.5% after a 2.5% increase in January, which was led by a decrease in expenditure in equipment goods and slowdown in car purchases. Consumption expenditure in textile-leather plunged 8.7% in February, while household consumption in other manufactured goods slid 0.3%.

Consumers are responding to the deteriorating labor market conditions with some buying resistance, Dresdner Kleinwort analyst Rainer Guntermann said.

Guntermann said its questionable that whether the government will resist the increasing calls for further state stimulus once unemployment picks up sharply. He said easing inflation and recent stimulus packages has hardly offset consumers' fear of a further rise in unemployment. The French government forecasts that employers would eliminate around 300,000 jobs in 2009 due to deepening economic slowdown.

Separately, the statistical office said the business confidence indicator in March was stable at its record low level of 68. Firms' personal production outlook improved slightly in March. The related index rose to minus 45 from the previous month's minus 46 and the improvement was in line with economists' expectations. The general production outlook index moved to minus 70 from minus 76, defying expectations of a decline to minus 78.

The lack of a clear-cut improvement in confidence probably means that companies will remain in restructuring mode, Guntermann said.

In the wake of negative economic indicators, the analyst expects calls for additional fiscal stimulus are likely to intensify. Gross domestic product, or GDP, may shrink by as much as 2% in the first quarter, but the contraction is unlikely to be as severe as in Germany, the analyst said.

The second-largest Eurozone economy is on the brink of a recession after contracting 1.2% in the final quarter of 2008. The statistical office predicts a contraction of 1.5% in GDP in the first quarter, while the Bank of France sees a 0.6% fall.

Earlier in the month, Finance Minister Christine Lagarde lowered government's GDP outlook for 2009. The government expects GDP to fall 1.5% in 2009, down from 0.2%-0.5% growth forecast previously.

Also on Tuesday, reports said citing Markit Economics that the flash manufacturing purchasing mangers' index for France stood at 36.3, up from 34.8 in February. It was also higher than the consensus forecast of 35. Similarly, the services PMI improved to 42.9 from the previous month's 40.2.

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