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By Tamora Vidaillet
PARIS, March 4 (Reuters) - France will suffer its worst postwar recession this year with the budget deficit ballooning to nearly twice normal EU limits, according to new government projections on Wednesday.
The figures, already widely leaked in the media and broadly confirmed by the economy ministry, were presented to the cabinet by Economy Minister Christine Lagarde.
The revised budget figures replace the official forecast of 0.2-0.5 percent growth this year that had long ago been relegated to the scrapheap, but which had not yet been replaced by a new official outlook.
The new forecasts show the French economy is 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.
"The situation is difficult, down 1.5 percent, it's a year such as we have not seen since the first oil shock, so it's a year of contraction," government spokesman Luc Chatel told a news conference after the cabinet meeting.
Each day brings news of company layoffs, plunging car sales or rapidly dwindling consumer confidence while unemployment has risen past 2 million, bringing the jobless rate to 8.3 percent in January, according to European Union data.
The relentless drip of bad news has posed an increasing headache to a government that has seen its approval ratings dive and a potentially menacing wave of protests that brought up to 2.5 million people onto the streets in January.
The European Commission is forecasting a 1.8 percent contraction for France in 2009, while the IMF expects the economy to shrink 1.9 percent.
DISASTROUS
The French forecasts see a rebound next year, with growth in the euro zone's second biggest economy expected to be 1.0 percent. Chatel noted that the slowdown had hit some of France's neighbours and trading partners much harder. "We certainly have a slowdown in France but the slowdown is disastrous in most European countries, the United States or Japan," he said.
Like its counterparts elsewhere in the world, the French government has pumped billions into propping up the banking system as well as the wider economy, brushing aside the normal restraints imposed by European Union borrowing rules.
The deficit is expected to hit 103.8 billion euros or 5.6 percent of GDP in 2009, contracting slightly to 5.2 percent in 2010 and 4.0 percent in 2011, but it will remain well above the 3 percent limit laid down in the EU's Maastricht treaty.
The expected deficit has doubled since the original budget was presented last September. Budget Minister Eric Woerth told parliament that 30 billion euros of the deficit came from stimulus measures with another 30 billion due to a lower tax take. "The crisis deficit is an instrument to fight against the crisis itself and we obviously have to watch how it develops with a very great deal of vigilance and caution," he said.
France has so far narrowly avoided falling into recession -- normally defined as two successive quarters of negative growth -- but a 1.2 percent contraction reported in the fourth quarter underlined the shock facing the economy this year.
More than 300,000 people have joined the jobless rolls since April 2008, when France's unemployment total began rising from a 25-year low hit in the first quarter of 2008, undermining the consumer confidence that will be vital to any recovery. (Additional reporting by Emile Picy; Writing by James Mackenzie; editing by David Stamp)