UPDATE 1-France cuts 2012 growth forecast to 0.5 pct- PM

Mon Jan 30, 2012 10:50am EST

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PARIS Jan 30 (Reuters) - France cut its economic growth forecast for this year to 0.5 percent from 1.0 percent on Monday to take account of a Europe-wide slowdown, but said its cautious 2012 budget allowed it to avoid further belt tightening measures.

With three months to go before a presidential election, Prime Minister Francois Fillon said that France's 2 trillion euro economy - and the euro zone in general - would return to growth before the end of the first half of the year.

"We are cutting the growth forecast to 0.5 percent from 1.0 percent, which allows us to take account of an economic slowdown even if we are seeing the first green shoots of recovery in Europe now," he told a news conference after meeting ministers to fine-tune a package of reforms.

Fillon said the budgetary impact of the growth reduction would be 5 billion euros ($6.6 billion)but that no further austerity measures would be required because the government had left itself enough room for manoeuvre in its 2012 budget.

The government's new growth forecast is exactly in line with that of Socialist presidential candidate Francois Hollande, who unveiled his economic programme for April's election last week.

Hollande has pledged to stick to the government's EU commitment to cut the deficit to 3 percent of gross domestic product by 2013, from roughly 5.5 percent last year.

The International Monetary Fund (IMF) has forecast growth of just 0.2 percent for France this year, while a Reuters poll of economists predicted a slender 0.1 percent.

Fillon said the new growth forecast would be included in a revision of the budget law to be reviewed by the cabinet on Feb. 8, which will also include the details of a financial transactions tax outlined by President Nicolas Sarkozy on Sunday.

The tax, which will be levied on stocks, high frequency trading and naked Credit Default Swaps (CDS) - taking out a form of insurance against default without holding the underlying security - is due to take effect from August 1 and should raise 1 billion euros a year.

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