French economy grew in Q3, escaping recession

PARIS (Reuters) - The French economy unexpectedly grew 0.1 percent in the third quarter after shrinking in the second, data showed on Friday, saving France from following Germany into recession.

Consumer spending and business investment held up well but analysts said France would have a much grimmer fourth quarter as the impact of the worsening financial crisis hit home.

"Whether we're in a recession or not is only a technical debate," said Jean-Louis Mourier, economist at Aurel Leven. "Both the surveys and indicators we've seen leave no doubt that in spite of this slight rebound the economy is on quite a bad trajectory."

Analysts in a Reuters poll had been expecting a contraction of 0.1 percent in the third quarter which would have put France in recession, defined as two quarters of negative growth'

National statistics office INSEE, which had itself forecast a 0.1 percent contraction in the third quarter, said second quarter output was unrevised at -0.3 percent.

"Consumption and company investment are the two motors that pulled France, pulled us ahead of Germany, ahead of Britain," Economy Minister Christine Lagarde said after announcing the numbers on RTL radio before their official release.

German data showed the euro zone's largest economy fell into recession in the third quarter, shrinking by a much sharper than expected 0.5 percent. Britain's economy also contracted 0.5 percent in the third quarter.

Euro zone GDP data is due out at 1000 GMT on Friday.

The INSEE report said household spending, which accounts for over half of GDP, rose 0.2 percent in the third quarter, after a flat reading in the previous three months.

Business investment was up 0.3 percent, a sharp reversal after a 1.0 percent fall in the second quarter.

But separate data provided further evidence that the French jobs market was deteriorating. Non-farm payrolls fell 0.1 percent in the third quarter, INSEE said.

"The decline is due to industry, where jobs are being lost regularly every quarter," said Domininque Barbet, economist at BNP Paribas.

In a third report released on Friday, INSEE said businesses had sharply downgraded their outlook for industry investment this year to a reading of 2 from a previous forecast of 6. The quarterly survey of company bosses said they were expecting a reading of -4 for 2009.

Carmaker Renault announced in September it was cutting 6,000 jobs and stories of job cuts have filled French newspapers in recent weeks. Adecco, the world's biggest staffing agency said in October it plans to cut up to 600 jobs in France and will merge about 75 branches as slowing economic growth forces it to cut costs globally.

(Additional reporting by Crispian Balmer, Brian Rohan, Veronique Tison and Estelle Shirbon; editing by David Stamp)