French economy to pick up as row with EU looms

France's economy barely expanded at the start of this year, but growth should pick up if fall short of government forecasts, the national statistics agency said on Thursday.

INSEE's forecasting arm said in its quarterly outlook report that it believes the French economy expanded by 0.1 percent in the first quarter.

The Bank of France last month forecast 0.2 percent growth for the January to March period.

Both their forecasts are a slowdown to the 0.3 percent growth rate that France turned in for the final quarter of last year.

A first estimate of first quarter gross domestic product growth is due in May.

INSEE expects growth to pick up to 0.3 percent in the second quarter, and for the economy to expand 0.7 percent for the year as a whole.

The government forecasts 0.9 percent growth, and a slower expansion could make it difficult to meet revenue targets and keep its promises to the EU on reducing the public deficit.

A 0.7 percent expansion would still be a considerable improvement to the 0.3 percent growth that France recorded in 2013, however.

Overall, "the progression in activity in France should therefore remain modest" in the first half of 2014.

Meanwhile, the unemployment rate in metropolitan France should remain steady at 9.8 percent in the first half of the year.

Bringing unemployment down was one of the main campaign pledges of President Francois Hollande in his 2012 election campaign.

The number of jobless, as measured by unemployment benefits claims, hit a new record of 3.34 million in February, an increase of 420,000 since Hollande took office in May 2012.

Heading for a row with Brussels

France's reshuffled government took a combative tone with Brussels on Thursday, with new Finance Minister Michel Sapin saying the "pace" of deficit reduction would be raised in EU talks.

European Central Bank President Mario Draghi quickly fired back that reviewing budget commitments would undermine confidence in the eurozone.

With the European Union pushing France to reduce its deficit, Sapin said he would work with the European Commission to "find the path to common interests".

"Europe will be in better shape when France is in better shape," Sapin said in his first public comments since his appointment on Wednesday.

"We must together share the only important concern: more growth for more jobs, while gradually rebalancing our public finances."

Sapin added that France would not abandon efforts to reduce the deficit, but provided no timeline.

"The goals are goals that we will meet," he said several times.

Sapin's remarks were in contrast to a warning by eurozone finance ministers on Tuesday that France must respect its promises to meet an already delayed EU deadline for budget limits.

Draghi repeated the warning on Thursday, telling reporters: "Undermining agreed rules undermines trust."

He said eurozone countries had made "important progress" in balancing budgets but should not "unravel past consolidation achievements".

The OECD, which advises rich nations on economic policy, also recommended on Thursday that eurozone nations "continue fiscal consolidation, respecting the requirements of the Stability and Growth Pact..."

France has promised to reduce its public deficit from 4.3 percent of national output last year to under 3.0 percent next year in line with the EU's pact.