UPDATE 2-French growth eases to 0.4 pct, just off forecast

By Leigh Thomas PARIS, Nov 12 (Reuters) - French growth decelerated slightly more than expected in the third quarter as increased consumer spending failed to offset the impact of a slower rebuilding of companies' inventories, according to preliminary data on Friday. National statistics office INSEE said third-quarter gross domestic product expanded 0.4 percent in the third quarter versus the previous three-month period, slowing from 0.7 percent in the second quarter. The result came in marginally below the average forecast of a Reuters poll for 0.5 percent growth, and confirmed France continued to lag the euro zone's economic powerhouse Germany, which posted growth of 0.7 percent in the third quarter. For the 16-nation euro zone as a whole, third quarter growth more than halved to 0.4 percent versus the previous three months, in line with forecasts. "Domestic spending is holding quite firmly and is clearly underpinning this super-soft landing in the second half of 2010," Deutsche Bank economist Gilles Moec said. "There is no major deceleration compared with where we were in the spring, but we have not yet tested French domestic spending for the impact of fiscal consolidation, which is starting in January," he added. Consumer spending, which accounts for roughly 60 percent of France's 1.9 trillion euro economy, doubled in the July-September period to 0.6 percent quarter-on-quarter. Growth in companies' inventories, which had driven the second-quarter GDP surge, slowed to 0.3 percent, half the rate seen in the second quarter. Total capital investment grew to 0.5 percent as imports expanded 4.1 percent and exports rose by 4.1 percent. "The details show that the deceleration was mainly due to the fact that the positive stimulus from companies rebuilding their inventories diminished, while export growth inched down," ABN AMRO economist Joost Beaumont said. "On the other hand, data showed that private consumption picked up," he added. Economist Mar Touati at brokerage Global Equities said that strong household spending "owes its vigour to the end of (car) scrapping bonuses" during the quarter as consumers rushed to take advantage of the promotions. French Economy Minister Christine Lagarde said in reaction to the data that the outlook for the fourth quarter remained solid. "Companies are starting to invest. The acceleration in household spending reflects the favourable effects of the labour market's stabilisation," she said in statement. The Bank of France forecast on Tuesday that would escape a sharp slowdown in growth in the second half of the year, estimating that growth would pick up to 0.5 percent in the final three months of the year. (Additional reporting by Daniel Flynn) Keywords: FRANCE ECONOMY/GDP (leigh.thomas@thomsonreuters.com; +33 1 4949 5143; Reuters Messaging: leigh.thomas.thomsonreuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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