MCO Moodys Corp

By William Horobin 

PARIS--The French economy is set to grow 1.1% this year as business activity recovers steadily from a tumble in the spring and weakness in the construction sector continues to drag, national statistics agency Insee said Thursday.

With only 1.1% growth for the whole of the year, France will continue to lag the wider recovery in the eurozone, which Insee expects will record a 1.6% expansion this year.

"The French upturn is coming in fits and starts," Insee said in the update to its economic forecasts.

The relatively gloomier outlook for the French economy raises concerns that the eurozone's second largest economy is stuck in a low growth trend, despite multiple tailwinds from low oil prices, low interest rates and a weaker euro that should help exporters.

In September, ratings firm Moody's Investors Service downgraded France's credit rating by one notch to Aa2 from Aa1 citing similar concerns about the prospects for the economy. Moody's expects continuing weakness in France's growth outlook to extend through the remainder of the decade.

After stagnating in the second quarter, Insee expects French economic growth to recover gradually in the remainder of the year as industrial output picks up.

The statistics agency said household spending--the traditional engine of the French economy--should also recover from stagnation in the second quarter as consumer purchasing power improves on higher wages and low inflation.

But the construction sector will continue to weigh heavy on the wider economy for the whole year as new building permits and an increase in housing sales take time to feed through to household investment, Insee said.

Insee's report did have one bright spot: employer tax cuts initiated by the government are seen driving job creation. All in all, Insee expects an increase of 41,000 jobs in the private sector this year after a 63,000 decline in 2014.

But as France's population grows, the increase in jobs won't be enough to start bringing down unemployment. Insee expects the unemployment rate to plateau at 10.3% for the remainder of the year.

Write to William Horobin at William.Horobin@wsj.com

(END) Dow Jones Newswires

October 01, 2015 16:14 ET (20:14 GMT)

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