By Joelle Diderich
PARIS, July 25 (Reuters) - French consumer spending bounced back from weak levels with a rise of 1.0 percent in June, but relief over the end of back-to-back elections was tempered by a concerns over a slew of public service price hikes.
National statistics office INSEE said expenditure by French households was up 2.6 percent year-on-year in June. It revised the monthly rise in May to a drop of 1.2 percent, slightly better than the 1.3 percent fall originally announced.
The figures exceeded forecasts by economists polled by Reuters that consumer spending would rise by 0.6 percent in June, for an increase of 2.1 percent year-on-year.
Consumer spending is crucial to recovery, having bolstered the euro zone's second largest economy against a sharp drop in foreign demand for its export goods last year.
"This is a very good figure, especially as it is based on a global rebound in sales in almost all sectors," said Christian Parisot, economist at Aurel Leven.
He said the figures were boosted by high turnover in the first days of the summer sales in retail stores, which began in late June, slightly earlier than the previous year.
However, consumer associations warned this week that a slew of recent price increases could hit spending across the board in the autumn, mitigating the impact of the new centre-right government's planned five percent income tax cut in September.
Small shareholders have also been hit by a global stock market rout which has seen shares in state-controlled telephone operator France Telecom nosedive 70 percent this year.
THREAT TO RECOVERY
Among the price hikes announced in recent days are rises in the price of petrol, telephone fees and railway tickets. Electricity and postage rates are also expected to go up.
The left-wing opposition and unions denounced the increases, which they say have a disproportionate impact on poor households and threaten recovery prospects.
"This set of measures is socially unfair and will weigh on growth by amputating household spending, which was the engine of French growth for the last five years and remains key in today's economic and financial context," the Socialist Party said.
French gross domestic product grew 0.4 percent in the first quarter of 2002 after falling 0.4 percent in the last quarter of the previous year.
INSEE said consumer spending in June was fuelled by sales of clothing and shoes, which jumped 7.7 percent month-on-month.
In anecdotal evidence, retailers noted customers have had six months to adapt to the euro single currency, whose introduction in January kept many confused bargain-hunters away from the winter sales.
Meanwhile, car sales were up 1.4 percent in June from May, while sales of household equipment and furniture fell 2.4 percent, according to INSEE.
LITTLE TAX GAIN
The May figures meant the second quarter ended on a positive note, said Marie-Pierre Ripert, economist at CDC Ixis.
"However, we remain cautious over prospects for the coming months because of the uncertain job market, the fall in company profits and the rise in public service rates," she added.
"The expected impact of the tax reduction on consumer spending in September and October will be cancelled out by these rate increases," she said.
Petrol prices rose this week after the government scrapped compensation measures introduced two years ago to cushion consumers against sharp oil market swings following widespread protests by car owners and trucking companies.
State railway operator SNCF said its rates would rise by an average of 1.8 percent from August 1, after the Paris Metro increased its prices by an average of three percent on July 1.
France Telecom's basic telephone line subscription rate went up by 3.6 percent last Sunday and officials are expected to announce a 2-3 percent rise in electricity prices later on Thursday.
Even the price of a standard stamp is due to increase to 0.50 euros from 0.46 euros, a whopping nine percent rise, although technical hurdles mean the new price is unlikely to come into effect before the end of the year.
"The problem is that the income tax reduction benefits essentially high-income households whereas rate increases affect everybody," said Stephane Deo, economist at UBS Warburg.
Meanwhile, the outlook from companies, many of whom were reporting second quarter results this week, remains mixed.
French telecoms equipment maker Alcatel on Thursday posted a narrower-than-expected operating loss of 177 million euros, but said there was no sign yet of a market recovery in the second half of the year.
"Alcatel expects markets to stay depressed in the second half of 2002, with no sign of recovery in view," CEO Serge Tchuruk said in a statement.