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By Tamora Vidaillet
PARIS, Jan 16 (Reuters) - The Bank of France estimates the French economy contracted sharply in the fourth quarter of 2008 and its monthly business survey on Friday said business managers expected the downturn to deepen.
The central bank said it expected gross domestic product in the euro zone's second-biggest economy to have contracted by 1.1 percent in the final three months of 2008, down from its previous quarterly estimate of -0.7 percent.
That would still not officially put France into recession -- unlike many of its European partners -- since it registered growth of 0.1 percent in the third quarter.
But there were signs economic activity lost further momentum, especially in the services and industrial sectors, at the end of last year as the Bank of France's business sentiment indicator fell to 66 in December.
That was the lowest since records began in 1987, and follows a reading of 68 in November.
The situation was likely to get worse, according to business managers surveyed.
"Business managers' forecasts point overall to a further decrease in activity over the coming months," it said. http://www.banque-france.fr/gb/stat_conjoncture/survey/survey.htm
Average annual GDP growth was likely to register 0.7 percent for 2008, the central bank said, trimming its previous estimate of 0.8 percent.
In December, the downturn in French industrial activity and the services sector accelerated as order books shrank for both the domestic and external markets, according to the survey.
"According to the business managers surveyed by the Banque de France, overall the downturn in industrial activity gathered pace in December," the Bank of France said.
"The decline was particularly marked in the intermediate goods and automotive sectors," it said.
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The latest estimates from the Bank of France chime with analysts' expectations for a marked contraction in the final three months of 2008, before France tips into recession.
While France is in for a painful few months of contracting growth and rising unemployment, some analysts have pointed out that neighbouring countries were being harder hit by the worst economic conditions in decades.
"If you compare these results with what was released a few days ago for Germany, you see that the German situation is even worse at the moment," Jean-Michel Six, Chief European Economist with Standard & Poor's in Paris, told Reuters Television.
The global downturn has battered manufacturers in Europe's biggest economy, and the German statistics office estimated this week that the economy contracted by between 1.5 and 2.0 percent quarter-on-quarter in the final three months of 2008.
That would be the biggest quarterly contraction since German reunification in 1990.
"In both cases obviously it is a decline, but it is even more severe, even more dramatic in Germany," said Six.
France could draw some comfort from relatively high savings rates and a housing market whose slowdown was not as deep as that unfolding in Britain, Six said.
Economists expect the French economy to contract in the coming months before potentially growing again from the fourth quarter as external demand picks up and the global economy charts a recovery. (Additional reporting by James Mackenzie; Editing by Ruth Pitchford)