French recovery too weak to curb unemployment - INSEE

Thursday, 19 Dec 2013 | 3:00 PM ET

* INSEE sees 2013 GDP growth of 0.2 pct with year-end rebound

* Unemployment to keep ticking higher despite recovery

PARIS, Dec 19 (Reuters) - France is set to eke out economic growth of 0.2 percent this year, but a year-end rebound will be too weak to get unemployment falling as President Francois Hollande has pledged, the INSEE statistics agency forecast on Thursday.

The government had said it expected the euro zone's second-biggest economy to expand at least 0.1 percent despite a soft start to the year.

After contracting 0.1 percent in the third quarter, INSEE forecast that the French economy would grow 0.4 percent quarter-on-quarter (q/q)in the final three months of the year, boosted by a bounce back in business investment and exports.

However, the improvement would prove short-lived, INSEE said in its latest economic outlook, forecasting that French gross domestic product would grow by only 0.2 percent q/q in both the first and second quarters of 2014.

Recent economic data have painted a mixed picture of French economic activity, with the purchasing managers' survey pointing to a new downturn while better business sentiment polls have prompted the Bank of France to raise its fourth quarter growth forecast to 0.5 percent.

The outlook offers scant relief to Hollande as he struggles to live up to a promise to jump-start the economy, in particular by getting unemployment on a downward trend by year-end.

INSEE economist Laurent Clavel told journalists that state-sponsored jobs in the private sector would help employment, but not enough to absorb the growth in the labour force.

As a result the unemployment rate, which stood at 10.9 percent in the third quarter, would reach 11.0 percent by mid- 2014, just shy of the record 11.2 percent reached in 1997.

Despite considerable slack in the economy, INSEE estimated that inflation would rise in the coming months to reach 1.1 percent in the middle of 2014 compared with 0.7 percent in November.

It estimated that an increase in valued-added sales tax at the start of 2014 to 20 percent from 19.6 percent currently would add 0.2 percentage points to the inflation rate.

(Reporting by Yann Le Guernigou; writing by Leigh Thomas; Editing by Mark Trevelyan)