By Tamora Vidaillet
PARIS, March 19 (Reuters) - France will probably experience a deeper recession than previously thought as shrinking global demand batters exports while firms slash investments and run down stocks, national statistics office INSEE said on Thursday.
The euro zone's second-biggest economy would probably contract 1.5 percent quarter-on-quarter between January and March after shrinking 1.2 percent in the final three months of 2008, INSEE said in a quarterly report.
Its latest projections for the first quarter were far worse than the 0.4 percent contraction seen for the period when INSEE published its previous economic outlook in December.
"We forecast that activity will decrease markedly in the first quarter of 2009 and then in a slightly more moderate way in the second quarter," senior INSEE official Benoit Heitz told a news conference. A sharp fall in world demand would prompt French exports to sink 5.8 percent in the first three months of this year while deepening gloom among company chiefs meant they would prune back investments in the months ahead.
The recent slowdown in overall activity coupled with still difficult financing conditions faced by firms meant more than 330,000 jobs were likely to disappear in the country between January and June and the jobless rate would shoot higher.
Unemployment according to International Labour Organisation (ILO) definitions appeared set to hit an average 8.8 percent in the second quarter of 2009, according to INSEE.
Still, though France's pain was set to deepen, the crisis would deal a harder blow to other countries, including Germany and Japan, whose economies were more exposed to plummeting exports and the tailing off in demand.
PAIN SEEN EASING
Stressing uncertainties clouding the outlook such as challenges faced by banks and financial market tensions, INSEE said France's downturn should be less pronounced in the second quarter, when GDP was seen contracting by 0.6 percent.
That hope was pinned on expectations that the impact of economic stimulus plans at home and abroad would limit the pain in the medium-term.
"The less marked deterioration in activity in Q2 than might be expected at first sight can be explained by the stimulus plans recently introduced in France and our main partners," INSEE said in its report.
Consumption was likely to stand out as a relative bright spot and would grow, albeit it at a slower pace than before given job fears and downward wage pressures.
Easing inflation and state aid for targeted pockets of the population would offer limited support for households' purchasing power.
The government has already flagged expectations for France to suffer its worst postwar recession this year, and for the nation's budget deficit to balloon to nearly twice normal European Union limits. The economy ministry said earlier this month that the economy was expected to contract 1.5 percent in 2009, worse than the 1.0 percent contraction in 1975 during the oil shock that sent the world economy into a tailspin.
INSEE officials gave no specific forecasts beyond the first half, saying that it was extremely difficult to pin down projections in the current environment. (Additional reporting by Vicky Buffery) (Editing by David Stamp)