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PARIS, April 22 (Reuters) - Prime Minister Francois Fillon said on Wednesday the French economy was likely to contract by 2.5 percent in 2009, with only a slow recovery expected in 2010.
Given the grim outlook, Fillon told France Inter radio the government would not increase taxes to try to tame the ballooning budget deficit and ruled out hiking the retirement age ahead of the 2012 presidential election.
"It is very difficult to make forecasts because every month the (economic) institutes are lowering their forecasts," Fillon said. "What is certain is that 2009 will be a year of severe recession ... a (contraction) of -2.5 percent is probable."
The government last cut its economic growth forecast for 2009 in March, predicting a decline of 1.5 percent for the year. Many independent organisations have signalled a far worse recession, with the OECD seeing a contraction of 3.3 percent.
However, Fillon said some sectors were already showing signs of a pick up, notably the housing industry, and said low inflation rate and a drop in commodity prices would help the economic recovery.
He also said an expected improvement in the U.S. economy from the fourth quarter of 2009 would help France.
France's budget deficit is expected to hit some 6 percent of gross domestic product this year and stay above the 3 percent limit laid down in the EU's Maastricht treaty until at least 2012.
Fillon said the jump in the deficit would be temporary, adding the government would look to reduce its spending rather than add to the tax burden to improve state accounts.
"To increase taxes today would push the country deeper into crisis. To increase taxes just when a recovery is starting ... would be the best way to kill it off," he said.
Fillon also denied press reports the government was considering hiking the retirement age in France, saying such a decision could only be taken after a "large national debate at the time of a presidential election".
President Nicolas Sarkozy did not commit himself to raising the age of retirement during the last election campaign in 2007. The next election is due in 2012. (Reporting by Crispian Balmer; editing by Chris Pizzey)