RPT-UPDATE 1-French consumer spending beats expectations in May
* Strong spending raises chances recession over
* With vast slack in economy, producer prices plunge
* Economy seen contracting over course of 2013
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PARIS, June 28 (Reuters) - French consumers spent significantly more than economists had expected in May despite concerns about surging unemployment, data showed on Friday, rekindling some hopes that France might be slowly emerging from recession.
However, although the risk of prolonged recession may be receding, activity remains far too weak in the euro zone's second-biggest economy for a rapid recovery, economists said.
The INSEE statistics agency reported that household spending rose 0.5 percent over the month, beating by a wide margin the average forecast given by economists of a 0.1 percent fall.
INSEE said the rise was due mainly to a rebound in purchases of food, which jumped 1.4 percent over one month, partially making up for a drop of 3.4 percent in April.
The improvement in French consumer spending mirrored an increase in German retail sales in May, which were up 0.8 percent over one month, their best performance since January.
French household spending, traditionally the motor for the 2 trillion euro $2.6 trillion) economy, has struggled for months as consumers retrench in the face of spiralling unemployment.
French consumer confidence fell this month to a record low on expectations that unemployment would keep rising in the coming months, after jobless claims hit a new record high in May.
Coupled with recent improvements in industrial production and business confidence, the bounce in consumer spending makes it more likely that data for the second quarter will show France returning to feeble growth or stagnation after a short, shallow recession entered in the first quarter.
Unicredit economist Tullia Bucco said that though private-sector consumption was now likely to prove stronger than expected this quarter, any hopes for a rapid recovery would be disappointed as any spare household income was dwindling.
"Overall, we continue to expect the underlying trend in household spending to remain weak and we foresee a likely correction in spending for June," she said.
Even if France shakes off the recession this quarter, it has barely any growth momentum behind it and INSEE forecast this month that it was likely to contract 0.1 percent this year. However, Standard and Poor's forecast on Thursday that a contraction of 0.3 percent was likely.
With demand weak, there is vast slack in the economy, pushing down prices. Producer prices fell 1.2 percent month-on-month for the second month running, INSEE said on Friday.
Weak growth is further complicating the government's task of trying to keep the national debt from rising with new data from INSEE showing it hit a record 91.7 percent of output in the first quarter. The French government is counting on public debt peaking in 2014 at 94.3 percent of GDP.
($1 = 0.7691 euros)
(Editing by Brian Love and Greg Mahlich)