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France suffering 'severe recession': IMF

world Updated: Jul 31, 2009 18:49 IST

France is in "severe recession", the IMF declared on Friday but said the slump was less bad than in other eurozone economies and advised the government to aid the banking sector and keep budget deficits in check.

"The global financial crisis and the contraction of world trade have pulled the French economy into a severe recession and put its financial sector under strain," the International Monetary Fund said in an in-depth report.

"Structural features combined with early policy action have helped soften the downturn, which is somewhat less pronounced than in the euro area as a whole," the report said.

The report added however that unemployment had risen, consumer price inflation had fallen, budget deficits were growing and banks with toxic assets needed more government support.

The IMF forecast that the French economy would shrink by 3.0 percent this year -- its worst result since 1949 -- and would then recover gradually and grow by just 0.4 percent in 2010.

Unemployment will peak at 10.2 percent by 2010, the IMF said.

Public deficit will hit 7.5 percent in 2009 and 2010 and remain at 5.2 percent until 2014 -- well above the eurozone limit of 3.0 percent, it added.