* July industrial confidence stable from June
* Economy struggling to gain momentum
PARIS, July 23 (Reuters) - France's industrial companies expect export orders to drive a pick up in demand in the next few months, with sentiment among them stable at a low level in July, surveys showed on Wednesday.
In a sign relief may be on the way for the struggling industrial sector, companies said they expected overall demand would be above the long-term average in the coming three months, official statistics agency INSEE reported.
Companies expected foreign demand to improve even though they felt their competitive position in foreign markets had deteriorated to well below the long-term average, INSEE said in a quarterly survey.
French exporters have gradually lost market share in the past decade as they have struggled to compete internationally with foreign rivals that enjoy lower labour costs and taxes.
Engineering group Alstom offered a case in point, saying in a trading update on Wednesday that it expected sustained sales growth in its rail arm, which has benefited from a massive contract from South Africa.
INSEE said production capacity in the industrial sector improved slightly, to 82 percent from 80 percent three months ago, although it remained below a long-term average of 85 percent, suggesting considerable capacity remains idle.
Business sentiment in France's industrial sector has languished at low levels this year, and INSEE said separately its monthly industrial morale indicator was unchanged in July from June, disappointing expectations it would improve slightly. The indicator remains well below its long-term average.
President Francois Hollande plans to phase out 30 billion euros ($40.4 billion) in payroll taxes to get companies hiring and investing again in an effort to revive the economy.
The head of the Medef employers association Pierre Gattaz said earlier this week that companies were doing anything but that as they remained firmly in retrenchment mode.
The outspoken industrialist also described the state of the economy as "catastrophic", prompting Hollande to accuse him of undermining already weak business confidence and ignoring the government's efforts to help business through tax relief.
The euro zone's second-biggest economy produced no growth in the first quarter of the year and has struggled to gain momentum since then, jeopardising the governments hopes of achieving 1.0 percent growth this year. ($1 = 0.7432 Euros) (Reporting by Leigh Thomas; Editing by Catherine Evans)