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France to escape recession, but only just- INSEE

PARIS, Oct 4 (Reuters) - France will duck a recession over the next two quarters but the stalled economy will book growth of only 0.2 percent this year, the national statistics agency said on Wednesday, complicating the government's efforts to fuel a recovery.

In its quarterly outlook, INSEE estimated that Europe's second-biggest economy would post zero growth over the next two quarters, marking straight five quarters with no growth.

President Francois Hollande's Socialist government is counting on growth of 0.3 percent this year, and anything weaker raises the risk that extra savings or taxes will have to be found to keep the budget on track.

"The French economy is at a standstill, but we think that it will escape a recession in the second half of the year," said Cedric Audenis, head of economic forecasting at INSEE.

The 2 trillion euro economy would eke out 0.2 percent for the whole of 2012 only thanks to the statistical carry-over from 2011, when growth stood at 1.7 percent, INSEE said.

Audenis said the economy would need to book growth of at least 0.3 percent each quarter next year to achieve the full-year rate of 0.8 percent the government has based its 2013 budget on.

The budget sets out the toughest belt-tightening effort that post-war France has seen, an effort the government has deemed vital to keeping its deficit reduction pledges on track.

Hollande is struggling to live up to campaign promises to revive the economy and reverse a steady rise in unemployment, which is running at over a 13-year high.

With the economy at a standstill, INSEE forecast that 67,000 jobs would be lost in the second half of the year, driving the unemployment rate up to 10.6 percent in the fourth quarter.

Limp levels of activity would keep inflation pressures tame, with the 12-month rate seen falling to 1.9 percent in December from 2.1 percent in August.

Meanwhile, a combination of higher energy prices, slowing wage growth and rising taxes would crimp consumers' purchasing power. Household spending would hold steady but only because consumers would rein in their savings to keep purchases up.

With profit margins at the lowest level since the mid 1980s, corporate investment was seen falling in the second half of 2012 even though credit is currently cheap, INSEE said.

On top of the weak economic conditions, French companies are set to come under new fiscal pressure from budget measures that seek to raise 10 billion euros ($13 billion) through tax hikes on businesses. ($1 = 0.7751 euros)

(Reporting by Leigh Thomas and Yann Le Guernigou; Editing by Toby Chopra)

((leigh.thomas@thomsonreuters.com)(+33 1 4949 5143)(Reuters Messaging: leigh.thomas.thomsonreuters.com@reuters.net))

Keywords: FRANCE ECONOMY/