By Brian Rohan
PARIS, Nov 25 (Reuters) - The French economy will shrink 0.4 percent in 2009, the OECD forecast on Tuesday, ditching its previous prediction of 1.5 percent growth.
The euro zone's second-largest economy has so far avoided the recession which has hit neighbouring Germany and the wider euro zone, with GDP unexpectedly rising 0.1 percent in the third quarter this year.
But the Organisation for Economic Cooperation and Development said sharply deteriorating global economic conditions meant the country was clearly heading into recession. "The impact of this turbulence will reverberate well into 2009, with negative growth expected until the middle of the year," the Paris-based think tank said in its twice-yearly Economic Outlook.
This recession would push unemployment from 7.3 percent this year to 8.2 percent in 2009 and 8.7 percent in 2010, the OECD predicted.
The government's budget deficit would also rise to 3.7 percent of GDP next year, above the European Union ceiling of 3 percent, before it rises to 3.9 percent in 2010.
"Significant widening of the general government deficit is expected in both 2009 and 2010, despite the announced tightening of fiscal policy over the next few years," the report said.
"The scope for additional discretionary measures is limited by (France's) poor public finance position and prospects. The focus on expenditures control and reform of the public administration should be maintained," it added.
The French government is considerably more optimistic about its deficit breach, with budget minister Eric Woerth expecting it to hit only 3.1 percent of GDP in 2009.
But due to the gravity of the world economy, the excess may not matter much this time as the EU has said it would be flexible on its deficit rules on a country-by-country basis.
The OECD also said the economic slowdown should help to limit further increases in wages. It expected wage growth to slow to 1.6 percent in 2009 from 3.5 percent this year.