French consumer confidence has dropped to its lowest level in five years, as fears of war combine with a wave of job cuts.

The consumer confidence index compiled by state statistics agency INSEE slumped from minus-17 in December to minus-22 last month - the figure representing the difference between the percentages of optimistic and pessimistic respondents.

The January figure was worse than most analysts had expected, and echoed fears that some of Europe's biggest economies may be more troubled than predicted.

Germany, Europe's biggest economy, on Monday revealed the first annual fall in consumer spending since 1997.

Fearful French

"The French are clearly scared," said Marc Touati of Natexis Banques Populaires.

Mr Mer admits budget discipline is slipping

"People are scared about unemployment, what with all the media attention on job cuts and nothing about job creation, and about living conditions, which stems from geopolitical worries like fears of war in Iraq."

The French jobless rate climbed to 9.1% in December, above the EU average.

A raft of high-profile manufacturers - including foods firm Danone and metals and packaging giant Pechiney - have shut factories, and hi-tech firms such as Alcatel have slashed thousands of jobs.

Some analysts also pointed out that French consumer confidence had been artificially high during the latter part of 2002.

Budget bother

Falling confidence reflects wider woes in the French economy.

Growth was just 0.2% during the third quarter of last year, and may amount to no more than 1% once the full year's figures are added up.

The state budget, which underpins much of the economy, is under pressure as the European Commission steps up its criticism of French overspending.

The French Government bases its economic forecasts on the assumption that its budget deficit will not exceed 2.5% of annual gross domestic product.

But Finance Minister Francis Mer admitted on Tuesday that the deficit may approach 3% - the ceiling imposed by Brussels as part of a mechanism to defend the euro.