PARIS, Dec 12: The French economy will shrink by 0.7 per cent in the fourth quarter, the central bank said on Friday, in a forecast that will increase scrutiny of President Nicolas Sarkozy’s plans to avert a recession.

Sarkozy has a 26-billion-euro ($33-billion) stimulus plan and still hopes for slight growth next year despite the global slowdown but the revised central bank projection will fuel calls for more ambitious action.

We can clearly see that economies today are tending towards a continued slowdown. It’s obviously extremely worrying, Budget Minister Eric Woerth said in a televised interview, predicting that 2009 would be very difficult.

France’s downturn was announced as Sarkozy was in Brussels thrashing out a joint European plan to revive the continent’s flagging economies, pushing for a large stimulus package in the teeth of tough German opposition.

The latest growth forecast also came as the bank announced France’s seasonally adjusted current account deficit widened to five billion euros ($6.63 billion) in October from 4.2 billion euros in September.

France has so far avoided slipping into the recession that has gripped many other European economies and the government is still predicting slight growth next year but the latest figures will increase fears over jobs.

According to the central bank, France’s industrial confidence index tumbled 10 points to 68 in November amid falling demand and plant closures, especially in the country’s key motor manufacturing sector.

Business leaders’ expectations remain on the whole oriented downwards over the coming months, the bank said in its statement. Capacity use is declining and remains noticeably below average.

Orders are falling. France has forecast growth of between 0.2 and 0.5 per cent in gross domestic product (GDP) for 2009 but both the International Monetary Fund and the OECD predict its economy will enter a recession, contracting by up to 0.5 per cent.

Sarkozy’s response has been the 26-billion-euro stimulus plan, which includes massive state investment and aid for the vital car and construction industries, aiming to increase growth by one percent.

Now, the group expects the telecoms equipment market to shrink by between eight and 12 per cent next year.—AFP