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France exits recession, beats second quarter GDP forecasts

Workers hold a motorsport racing tyre stocked in the Michelin tyre company's factory in Clermont-Ferrand, central France, July 10, 2013. REU
Workers hold a motorsport racing tyre stocked in the Michelin tyre company's factory in Clermont-Ferrand, central France, July 10, 2013. REU

PARIS (Reuters) - France pulled out of a shallow recession in the second quarter with better-than-expected economic growth of 0.5 percent, preliminary data from the INSEE statistics agency showed on Wednesday.

Boosted by consumer spending and industrial output yet curtailed by yet another drop in investment, it was the strongest quarterly growth of President Francois Hollande's 15 months in office and the biggest rise since early 2011.

A Reuters poll of 26 economists had forecast that the euro zone's second-largest economy would post 0.2 percent growth on average for the three months to end-June.

Consumer spending, up largely on higher heating bills due to particularly bad weather, as well as domestic demand as a whole, helped France post better-than-expected growth, with stock variations also contributing.

Investment, however, contracted for the sixth quarter in a row, with household investment dragging the reading down. Business investment contracted again, although less than in the previous quarters.

With both exports and imports growing in the second quarter, foreign trade had no impact on GDP.

"The strong second-quarter performance will be a boost to President Hollande, who can now substantiate his views that the 'recovery has already arrived," said economist Diego Iscaro at IHS Global Insight.

"However, with unemployment standing at a record high, corporate profitability under intense pressure and fiscal policy being tightened further in 2014, we believe that to expect the strong second-quarter performance to be repeated over the coming quarters would be very optimistic."

Before Wednesday's data, INSEE had forecast that the 2-trillion-euro economy would contract by 0.1 percent overall this year.

Finance Minister Pierre Moscovici also welcomed the second-quarter data, saying it confirmed that the French economy had exited its recession.

(Reporting by Ingrid Melander; Editing by Catherine Bremer)

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