A SURPRISE steep economic downturn in France has pushed the entire eurozone economy into the red for the second quarter of the year.

The poor performance saw Continental bond prices rise and European share indices fall. The euro dipped briefly below $1.11 against the US dollar as economists cut their hopes of modest growth in the single currency area over the year to less than 0.4 per cent.

The French economy shrank by 0.3 per cent between April and June, a much weaker performance than initially forecast by analysts. Only a month ago, Jean Pierre Raffarin, France’s Prime Minister, estimated that the country’s economy had expanded by 0.1 per cent during the three months.

The setback completes a dismal series of falls among all the main economies of the single currency zone except Spain.

Eurostat, the EU’s statistical agency, estimated last week that output had been stationary in the eurozone as a whole during the April to June period. But it was forced to signal yesterday that it would be revising this, probably to a 0.1 per cent fall.

Eurozone output grew by 0.1 per cent between January and March, with the second quarter fall eliminating any evidence of economic recovery during the first half of 2003.

The City had been expecting Europe’s second largest economy to register flat growth in the second quarter, and the disappointing figures added to the gloom over propects for the eurozone. France accounts for about a quarter of eurozone production.

Jean Claude Trichet, the Governor of the Bank of France, who is about to take over as President of the European Central Bank, is likely to come under immediate pressure from Paris to engineer a series of cuts in European Central Bank interest rates during the autumn.

France had been judged the most successful of the big three member economies from the launch of the euro because it joined at what was taken to be a favourable exchange rate. But recently some of France’s biggest companies have been forced to retrench after a period of ambitious expansion.

Germany, Italy and the Netherlands are already in recession, and France would have become the fourth eurozone economy to follow suit had it not been for a modest rise in output in the first quarter of the year. Economists define a recession as two consecutive quarters of falling output.

France saw output drop in the fourth quarter of 2002, but rise in the first three months of this year. Even the first-quarter expansion, initially estimated at 0.3 per cent, has now been downgraded to 0.2 per cent.

The breakdown of the data showed widespread weakness in the French economy. Corporate investment fell, reflecting weakness in the business sector, and exports also came under pressure following the recent rise in the euro. Household consumption dropped 0.2 per cent on the quarter. Analysts estimated that the recent spate of public sector strikes may have accounted for a third of the output fall.

Analysts said there was likely to be a rebound later this year, after a good showing by industrial production during July, but estimates of growth for the year as a whole are now being cut.

Julian Callow, of Credit Suisse First Boston, said: “Leading and coincident indicators suggest an improvement in growth in the second half for both the euro area and France, but any acceleration will probably be fairly modest.”