PARIS France's economy posted no growth in the first quarter and there are no signs of a strong recovery in activity in the coming months, according to a Bank of France survey on Tuesday.
In its monthly report, the Bank of France indicated that the euro zone's second largest economy avoided a recession, after it grew by 0.2 percent in the fourth quarter.
However, it said that activity was likely to remain stable in the coming months, a picture confirmed by soft manufacturing data on Tuesday from the INSEE national statistics office.
The Bank of France said that its business sentiment indicator for industry was unchanged in March at 95, a 3-month low it reached in February.
It noted that industrial activity improved, with rises in pharmaceuticals and chemicals, transport equipment and hi-tech goods. "Forecasts suggest that activity will remain stable in the short term," the bank said.
Economists said that with fiscal tightening across Europe weighing on external demand for French goods and with rising domestic unemployment likely to peak next year above 10 percent, it was no surprise the growth outlook was weak.
"The figures are a little bit disappointing," said Michel Martinez, economist at Societe Generale in Paris, who forecasts modest 0.5 percent growth in France for the year as a whole.
"They are in line with the cyclical picture of the French economy which stalled in the fourth- and the first-quarter and where the recovery will be weak," he said. "You cannot have a tough fiscal adjustment over two years and expect strong growth at the same time."
President Nicolas Sarkozy, who trails his Socialist rival in polls ahead of next month's crucial presidential runoff, has made cutting France's deficit a top priority. His government cut the deficit to 5.2 percent of GDP last year, below its target of 5.7 percent, and has pledged to balance the budget by 2016.
The Bank of France said industrial capacity utilization was unchanged in March and remained below its long-term average. Order books were close to normal levels while inventories were slightly above target.
For the services sector, meanwhile, the business sentiment level was also unchanged at 93, while the Bank of France said activity here had grown at a faster pace on the back of transport and engineering.
In a separate survey, INSEE said that manufacturing output fell by 1.2 percent in February after slipping a revised 0.1 percent in January.
For industry as a whole, output increased by 0.3 percent, in line with economists' forecasts, helped by a rise in gas and electricity consumption amid a cold snap.
Industrial output rose a revised 0.2 percent in month-on-month in January, in line with the euro zone average.
"Industrial production has been on a downward slope since mid-2011," wrote Fabrice Montagne, an economist at Barclays Capital.
"We will need to see stronger signs in terms of business sentiment, demand and competitiveness before we can expect a clear upswing in the French industrial sector," he said.
Economists said that the data confirmed the picture of an economy in the doldrums.
"Today's industrial production data support our forecast for flattish GDP in the first quarter," wrote Tullia Bucco, an economist at Unicredit in Milan.
INSEE had also forecast last month that France's 2 trillion euro economy would post no growth in the first quarter.
For the last three months as a whole, manufacturing output fell by 1.1 percent. It stood 1.6 percent below its level of a year earlier.
Hit by the closure of the Petit-Couronne plant, owned by insolvent oil refiner Petroplus, refining activity plunged by 13 percent in February.
The Purchasing Managers' index (PMI) data last week showed the biggest decline in factory activity for 33 months in March, after briefly stabilizing in February.
(Editing by Leigh Thomas/Jeremy Gaunt)