The French economy will eke out modest growth of just 0.1 per cent in the present quarter, after suffering a surprise contraction in the previous three months, the Bank of France said today.

The central bank’s forecast came as its latest survey of corporate managers revealed expectations of a further decline in business activity in the coming months.

The Bank of France’s monthly barometer of business sentiment across industry fell to a July reading of 92, down from 95 in June, and 105 in February.

The news offered a gloomy backdrop ahead of a key meeting later today convened by Francois Fillon, the French Prime Minister, to confront France’s deteriorating prospects.

Last week official figures showed that French GDP fell by 0.3 per cent in the second quarter, stoking fears that the eurozone’s number two economy will slide into the grip of technical recession.

France’s bleak second quarter combined with bad news from Germany, Italy and Spain to trigger a 0.2 per cent drop in GDP across the eurozone, and fuelled speculation that it, too, could succumb to recession.

Christine Lagarde, the French Finance Minister, admitted that the third quarter would be tough for France, but has continued to insist that recession could be avoided — a prognosis given some support by today’s Bank of France forecast.

Ms Lagarde has forecast that the French economy will grow by at least 1.7 per cent over the course of 2008.

The details of today’s Bank of France survey showed a rise in spare capacity at businesses, which is already above its long-term average as activity slows.

The results also showed the outlook for the intermediate goods sector, car making, and consumer goods sectors suggested declines over the coming months. The only brighter spots were in capital goods, food and agriculture.

Companies’ order books fell, although orders remained above normal levels, while stocks of completed goods posted a small rise.

Activity in the market services sector, ranging from hotels to computer and engineering services, showed moderate growth but the survey found forecasts pointing to limited growth over the coming months.

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