(adds background, Lagarde comments)
By Vicky Buffery
PARIS, March 9 (Reuters) - The French economy is expected to contract by 0.6 percent in the first quarter of 2009, the Bank of France said in a monthly survey released on Monday, leaving its forecast unchanged from the previous reading.
The central bank survey said industrial activity contracted sharply in February, due to a fall in production in both the intermediate and capital goods sectors and the car industry.
The outlook for the industrial sector also remained weak, with forecasts pointing to a further contraction in both activity and demand in the short term.
"The flow of new orders slackened further on both domestic and foreign markets," the Bank of France said.
"Order books continued to decline and remain very much below normal levels."
The business sentiment indicator for industry remained unchanged at 70 in February, but declined to 78 in the services sector from 79 in January, according to the survey.
A fall in GDP for the first three months of 2009 would confirm that the euro zone's second largest economy has finally slipped into recession, defined as two successive quarters of negative growth.
France's GDP shrank by 1.2 percent in the final quarter of 2008, its fastest pace of decline in 34 years, as the global financial crisis took its toll on exports and capital investment.
Data published recently has also pointed to a worsening picture for the French economy, with mounting job losses and falling prices.
Figures published last week showed France's unemployment rate climbed to 8.2 percent in the final quarter of 2008, from a revised 7.6 percent in the previous quarter.
Producer prices also dropped by a surprise 2.0 percent month-on-month in January, which was much worse than the 0.2 percent rise predicted by economists.
The French government last week conceded that 2009 will be an extremely difficult year, and revised downwards its forecasts for economic growth.
It now expects GDP to contract by 1.5 percent over the full-year, compared to a previous forecast for 0.2-0.5 percent growth.
At the same time, the European Commission is forecasting a 1.8 percent contraction for France in 2009, while the IMF expects the economy to shrink by 1.9 percent.
But 2010 should see a return to growth, with GDP expected to expand by 1.0 percent, according to the French government.
"Once we've finished using up inventories, the time will come when we'll need to start producing again, and I think, in that context, 2010 will see a rebound in economic activity," Economy Minister Christine Lagarde told BFM TV on Sunday. (Reporting by Vicky Buffery, editing by Crispian Balmer/Victoria Main)