PARIS, Oct 3: French leaders scrambled to reassure consumers, voters and investors on Friday after the official statistics agency warned that the eurozone’s second largest economy had slipped into recession.

The French economy shrank by 0.3 per cent in the second quarter of the year and on Friday the INSEE agency forecast that gross domestic product would drop by a further 0.1 per cent in both the remaining quarters of 2008.

Economists define a recession as two successive quarters of negative growth but the government, desperate to maintain public confidence in the face of the global slowdown, steered deliberately clear of the term.

“Finance Minister Christine Lagarde now regards the risk of negative growth in the autumn for the second quarter in a row as real,” her ministry announced, confirming INSEE’s estimates in a statement on Friday.

But neither Lagarde, nor the French chairman of the European Central Bank, Jean-Claude Trichet, would confirm that the slowdown had tipped into recession for the first time since 1993.

“ECB experts tell us that we have slowing growth,” Trichet told French radio Europe 1. “I will not use any word other than that — slowing growth with significant risks that growth may become even weaker.” Budget Minister Eric Woerth noted that taking into account the whole of 2008, the economy ought to grow by one percent.

“There’s a technical and statistical definition, and there’s the reality of things,” he said, when asked if he would define the situation as a recession.

But the press and the opposition had no such reticence.

Both the right-wing Le Figaro and the left-wing Liberation dailies headlined on France’s descent into recession, and the Socialist party leader seized on the figures as an opportunity to attack President Nicolas Sarkozy.

“Yes, the recession is here,” Francois Hollande told Le Parisien daily, charging that Sarkozy’s tax policies had “amplified the shock of the global situation.” French unemployment rose by more than 40,000 in August, the biggest one-month spike in 15 years, and INSEE now predicts unemployment will rise to 7.4 per cent in the third quarter from 7.2 per cent.

If INSEE is correct, France could be the second member of the eurozone single currency bloc to be in recession after Ireland.

It comes as economies around the world are wilting from the effects of a year of surging energy prices and the financial catastrophe that erupted when US and a host of other banks found themselves exposed to billions in bad debt.

The European financial sector has been badly hit by fallout from the crisis and France, Britain, Germany and the Benelux countries have had to mount bailouts and partial nationalisations to save their banks.

In the immediate term, leaders have pinned their hopes on the US Congress approving a $700 billion bail-out for its own banks and on a summit on Saturday of leaders from Britain, France, Germany and Italy.

But the European Commission predicts that economic heavyweights Germany, Britain and Spain are also headed for recession this year, raising the spectre of rising unemployment and business failures.

Earlier this week, the French government announced it would buy up 30,000 homes being built to boost the housing market and release 22 billion euros in business loans.

But Prime Minister Francois Fillon insisted on Friday that France would keep its finances in check, reaffirming the government target of a “near zero” public budget deficit by 2012.

France’s commitment to eurozone rules, which say members’ deficits should not exceed three per cent of gross domestic product, was thrown into doubt by a presidential adviser who said they were “not a priority of priorities.” —AFP