Dec. 21 (Bloomberg) -- Household spending in France, Europe's third-largest economy, rose the most in five months in November on purchases of cars and home appliances, underpinning expectations for a recovery in growth this quarter.

Purchases of manufactured goods increased 1.5 percent from October, when they climbed a revised 0.6 percent, Paris-based statistics office Insee said today. Economists polled by Bloomberg expected a 0.1 percent gain, the median of 23 forecasts showed.

The bigger-than-forecast increase may reflect former Finance Minister Nicolas Sarkozy's initiative allowing workers to withdraw cash from employee-savings plans. A rebound in household demand, the biggest part of the economy, would help growth accelerate from the weakest pace in more than a year in the third quarter.

Spending ``in the fourth quarter will likely resume its increase, in part under the effects of the Sarkozy's incentives,'' said Emmanuel Ferry, senior economist at Paris-based Exane BNP Paribas SA, France's biggest stockbroker, who was the most accurate forecaster of consumer spending last month. He expected a 0.5 percent increase this month.

The gain in French consumer spending adds to evidence that economic growth in the 12 nations sharing the euro may accelerate this quarter from 0.3 percent, the weakest pace in more than a year, in July-September. German industrial production, factory orders and retail sales all increased in October.

Forecasts Cut

For 2005, economists are less optimistic. Insee said Dec. 16 French growth may miss the government's forecast of 2.5 percent next year. In Germany, Europe's biggest economy, five of the six leading economic institutes this month lowered their 2005 growth forecasts to as low as 0.8 percent. The Munich-based Ifo institute today reduced its forecast to 1.2 percent from 1.5 percent.

The increase in French spending was led by a 7.4 percent jump in the purchase of cars, the report showed, as new models such as Renault SA's Modus small van and PSA Peugeot Citroen's C4 compact hatchback boosted demand. Renault sold 23 percent more cars and light trucks than a year earlier, a report from the French carmarkers' association showed on Dec. 1.

Sarkozy's measures allowed workers to withdraw up to 10,000 euros ($13,387) from employee-savings plans and grandparents to give heirs as much as 20,000 euros free of inheritance tax. Sarkozy, who left his position to lead France's UMP party, was replaced this month by Herve Gaymard.

Annual growth in French consumer spending accelerated to 6.5 percent in November from 1.9 percent in October. The monthly gain for October was revised down from 0.9 percent, Insee said.

Dishwashers, Clothing

French bonds, stocks and the euro were little changed after the report. The yield on the benchmark 10-year French government bond fell 1 basis point to 3.57 percent. The euro fell 0.3 percent to $1.3361 at 10:08 a.m. in Paris. The benchmark CAC-40 index was little changed from yesterday at 3761.04 points.

French shoppers also increased purchases of dishwashers, refrigerators and flat-screen televisions, which rose 1.7 percent in November, Insee said. Purchases of clothing and leather goods climbed 0.9 percent.

The French economy will expand 0.6 percent this quarter as consumers spending rises 0.6 percent after a 0.1 percent decline in July-September, Insee predicted last week. Car sales and rising health-care spending will probably lead the pickup, it said.

Spending growth isn't poised to match the rates of the first half of this year, when surging demand helped France's economy outpace the growth rates in Germany and Italy. Insee also predicts a slowdown in household spending in 2005.

Confidence Drop

French consumer confidence slipped to a four-month low in November, Insee said Nov. 30, and retail sales declined for a fourth month, the Bloomberg purchasing managers index showed. The unemployment rate was unchanged at 9.9 percent in October, the highest since February 2000.

``The situation for households is not very good at the moment,'' said Alexandre Bourgeois, an economist at Natexis Banques Populaires, who predicts French growth will slow to 1.8 percent next year. ``Their purchasing power has improved only moderately and the labor market situation remains quite bad.''

In Italy, an index of consumer confidence unexpectedly declined in December to 103.5 from 103.9, the Rome-based Isae Institute said today. Concerns about the outlook for the economy overshadowed plans by Prime Minister Silvio Berlusconi to cut income taxes by 6.5 billion euros.

In France, the health-care reform adopted in July will boost payroll taxes by 5.1 percent in the first half of next year, Insee predicted Dec. 16. That will contribute to slow the growth of households' purchasing power to 1.4 percent, from 2.1 percent in the earlier six-month period.

These taxes will dent demand and hurt French expansion, which will slow to a quarterly 0.5 percent and 0.4 percent in the first quarters of 2005, Insee said. The agency also cut its 2004 growth estimate to 2.1 percent from 2.4 percent.

Growth isn't strong enough to boost hiring. France's pace of job creation has failed to accelerate this year and will probably remain near 0.1 percent per quarter, Insee said last week.

To contact the reporter on this story: Sandrine Rastello in Paris srastello@bloomberg.net.

Last Updated: December 21, 2004 06:34 EST