The Bank of France's outlook will compound French woes amid fresh fears that its AAA sovereign rating could come under pressure from the escalating eurozone crisis. Earlier this week, the government unveiled a new ?65bn (�55bn) programme of spending cuts and tax rises to eliminate the budget deficit by 2016.
"Gross domestic product will be stable in the fourth quarter of 2011," the Bank said in its monthly business climate report for October. It is forecasting just 0.1pc growth for the three months to September, with official figures due on Tuesday.
Concern about the French economy and its exposure to the eurozone's ballooning debt crisis saw the government recently slash its 2012 growth forecast from 1.75pc to 1pc. Most economists now expect the eurozone to slip back into recession early next year, even if a full-blown catastrophe is averted.
The spread on French 10-year bond yields rose to a record 1.46 percentage points above Germany's ? the widest in at least 19 years. Traders pointed out that, as recently as April, Italy's "spread" was just 1.2pc. French 10-year yields rose 10 basis points to 3.179pc, while Germany's fell 9 basis points as investors sought a safe haven.
French banks have huge exposures to Italian debt ? of around ?290bn according to the Bank for International Settlements, even more than their holdings of UK and German debt. Those come on top of the ?40bn of Greek debt exposures.
The French finance ministry had more welcome news, revealing that the central government budget deficit, part of the overall deficit, had fallen by ?30bn at the end of September to ?92.7bn ? putting it on target.
The overall central government budget deficit for 2011 is expected at ?95.5bn, the ministry said. The government intends to reduce the overall budget deficit from 5.7pc of GDP this year to 4.5pc in 2012.
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