PARIS, Sept 26: France abandoned on Friday a promise to wipe out its public deficit by 2012, as the global financial crisis sapped growth, hit the job market and forced the government to unveil a gloomy annual budget.

The deficit forecasts were published along with a raft of bad economic news, which revealed that the economy had shrunk by 0.3 per cent in the second quarter of 2008 and that annual growth would lie between one and 1.5 per cent.

France began 2008 hoping for a growth rate of 2.25 per cent.

As a member of the 15-nation eurozone single-currency bloc, France had made a commitment to reduce its public deficit -- the shortfall on the central budget plus social security and local government spending -- to zero by 2012.

Instead, the 278.5-billion-euro (406-billion-dollar) budget warned the deficit would remain at 2.7 per cent of Gross Domestic Product (GDP) this year and the next, and then fall to 0.5 per cent by 2012.

Eurozone member states have to give assurances to keep their deficits under control in order to maintain the stability of the single currency and France could theoretically face sanctions if the shortfall is not made up.

The French budget deficit -- the gap between central government revenue and spending -- will continue to rise, hitting 52.1 billion euros next year compared to 49.4 billion euros in 2008.

The 2009 budget was drawn up on the basis that inflation would fall from 2.8 per cent in 2008 to 2.0 per cent next year, that oil will trade at 100 dollars per barrel and the euro be worth 1.45 dollars, according to the text.

Despite the bleak outlook for 2009, Budget Minister Eric Woerth predicted a return to strong growth thereafter, vowing to contain government spending.

“The crisis came upon us in an extremely violent manner, but the recovery could be extremely strong,” he said, before meeting parliament’s finance committee. “It’s a budget of vigilance and of the future.”

Separately, Employment Secretary Laurent Wauquiez released an estimate that August had seen between 30,000 to 40,000 new job seekers register with France’s state unemployment agency, the worst monthly spike since 1993.

The budget confirmed France’s plan to shrink the size of the public sector by not replacing 30,627 of the state employees due to take retirement in 2009, which the plan described as an “unprecedented” saving.

France’s disheartening news came against the background of continuing turmoil in world markets, following the banking crisis sparked by the collapse in mortgage lending and the failure of major US and British banks.

On Thursday, President Nicolas Sarkozy -- who came to power last year promising to put more money in voters’ pockets -- warned the French that they would not be spared by the global storm and predicted hard times ahead.

In a major speech, Sarkozy warned: “To tell the French people the truth, is to tell them the current crisis will have consequences in the coming months for growth, for unemployment, for purchasing power.

“The crisis is not over, it will have lasting consequences. France is too involved in the world economy for us to think for one second it could be sheltered from the events currently rocking the world.” Sarkozy promised to underwrite French savings accounts in the event any more banks come under pressure and promised populist measures to limit the salaries and “golden parachute” pay-offs paid to financial executives.

Opposition leader Francois Hollande accused Sarkozy of using the global crisis as an excuse to cover the failings of his own government.

“It must be understood that it’s in France that growth is the weakest, and that it’s in France that unemployment is highest and the public and trade deficits the heaviest,” the Socialist party chief said in a radio interview.

The French government statistics agency, INSEE, blamed the second quarter contraction on falling exports, which have been hit by the relative strength of the euro over the dollar, high fuel prices and the global economic slowdown.

France’s negative growth is the first contraction in the eurozone’s second largest economy since the fourth quarter of 2002, and was revealed one day after Ireland became the first eurozone country to enter recession.—AFP