Consumers lift French economy

Consumer spending accounts for two-thirds of the French economy

PARIS, France -- Consumers helped push the French economy ahead of its eurozone neighbours in the second quarter of the year, even as companies cut jobs and investment due to economic uncertainty.

But economists warned that a weak recovery could still threaten economic growth in the next six months.

Gross domestic product grew by 0.5 percent in the second quarter, slightly lower than economists had expected, but at the same pace as in the previous three months, the national statistics office INSEE said on Wednesday.

Consumer spending -- which accounts for two-thirds of France's GDP -- was up 0.5 percent from the previous quarter, INSEE said. Exports and imports both rose in the second quarter, resulting in a 3 percent increase in France's trade balance.

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"The first half of the year was good enough but export contributions will be less [in the second half] given the international environment, and destocking shows economic activity is frail,'' Laure Maillard, an economist at CDC Ixis, told Reuters.

Overall investment edged up 0.1 percent in the second quarter, helped by the rise in household consumption, INSEE said. However, business investment was down 0.4 percent as companies tightening their belts and laid off workers to counteract weak sales and falling share prices.

"We... expected a drop in business investment for the second quarter. It should stabilise in the second half and rise slightly towards the end of the year,'' Jean-Louis Mourier, an economist at Aurel Leven, told Reuters.

France, which has the euroszone's second biggest economy, turned in a better performance than its nearest eurozone rivals in the second quarter. Germany, the largest economy, posted GDP growth of 0.3 percent, while No. 3 Italy saw its economy expand by 0.2 percent.

Bank of France President Jean-Claude Trichet said this week the economy is expected to expand by 0.5 percent in the third quarter of this year, with consumer spending key to maintaining that growth.

He said the European Central Bank needs to reassure consumers that prices will remain stable so they will feel confident enough to continue spending.

Eurozone inflation jumped above ECB's target limit of 2 percent in August. Prices rose by 2.1 percent last month, up from a rate of 1.9 percent in July.

The ECB meets next Thursday to decide on whether to alter its key lending rate of 3.25 percent. The rate has remain unchanged since last November, after the bank lowered it four times.