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The French economy stagnated in the third quarter, slowing far more sharply than expected from the second quarter's blistering pace of growth and spurring analysts to trim eurozone growth forecasts.
Data on Friday gave an unchanged reading for the euro zone's second biggest economy, well under the consensus forecast of 0.5 percent growth and the worst performance since the second quarter of 2005 - bad news for Prime Minister Dominique de Villepin's government before 2007 presidential elections. "It's a bolt from the blue," said Nicolas Bouzou, director of economic studies at Asteres consulting firm in Paris.
The data, which helped eurozone government bonds and Euribor futures to rally, was the first estimate of growth from one of the bigger euro zone economies and an indication of how it weathered headwinds from abroad as the US economy slowed.
INSEE said French growth in the second quarter was an unversed 1.2 percent and calculated the economy would grow by at least 1.9 percent in the full year.
The government has predicted full-year growth would be between 2 and 2.5 percent. Economists said the final figure was now likely be nearer the bottom of the range and not the top, as Finance Minister Thierry Breton has predicted.
The Bank of France and INSEE were also caught off guard by the data. Last month they forecast third quarter growth of 0.5 percent and 0.6 percent respectively.
INSEE data showed industrial production unexpectedly fell 0.9 percent in September, defying economists' expectations of an increase of 0.4 percent.
The Customs Office reported the trade deficit narrowed to 1.348 billion euros in September from a revised 2.872 billion euros in August but the deficit for the year to date remained wider than in the same period a year earlier. Lower energy prices also had an impact on inflation data. Consumer prices fell 0.2 percent in October compared with the previous month.

Copyright Reuters, 2006

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