By Marc Joanny

PARIS, Nov 6 (Reuters) - France slashed its forecasts for economic growth and inflation next year and conceded it would overshoot the European Union's deficit limit, bringing its economic outlook closer into line with market expectations.
In a widely anticipated move, Economy Minister Christine Lagarde said the euro zone's second-biggest economy would grow by between 0.2 percent and 0.5 percent in 2009, dramatically down on the one percent expected previously.
Lagarde also lowered the growth forecast for 2010, saying it was expected to hit two percent instead of the 2.5 percent seen earlier.
Analysts have been expecting France to revisit its economic outlook given a deterioration in global growth and the world financial crisis.
On Friday, the European Commission lowered its forecasts for French economic growth to zero in 2009 and only 0.8 percent in 2010.
"We did have a very weak forecast of one percent, the weakest in 24 years, we are revising it to between 0.2 and 0.5 percent," Lagarde told the upper chamber of parliament.
"We are also revising our forecast for 2010 to two percent from 2.5 percent," she said in a speech.
While the latest forecasts moved closer into line with economists' expectations, for some, they remained overly upbeat for an economy believed to have entered a technical recession.
"It is still pretty optimistic actually," said Gilles Moec, an economist with Bank of America in London who is betting that France's economy will contract by 0.8 percent next year.
"If we were to have a positive reading in 2009, you have to factor in quite a nice recovery in the second half and we think that that it will only be gradual," he said.

Prospects for the country's budget deficit also darkened after Budget Minister Eric Woerth raised the deficit forecast for 2008 to 2.9 percent of gross domestic product (GDP) from the 2.7 percent seen originally.
Woerth also conceded that France's closely-watched deficit would breach the European Union's limit of three percent of GDP in 2009, when it would hit the 3.1 mark.
"For 2009, the revision to growth and of certain taxes particularly affected by recent developments, like the companies' tax, leads me to revise the public balance by around nine billion euros or around 0.4 percent of GDP," he told the French Senate.
"The initial public deficit forecast of 2.7 percent of GDP is therefore revised to 3.1 percent of GDP," he said.
But Woerth sounded a note of optimism, saying that the deficit was expected to recede to 2.7 percent of GDP in 2010, 1.9 percent in 2011 and 1.2 percent in 2012.
Any breach by European Union countries of the three percent deficit limit would normally prompt disciplinary steps by the European Commission. But the rules also include a clause allowing longer budget deficit correction times during a sharp economic downturn.
Lagarde also altered expectations for inflation, saying that it would run at a rate of 1.5 percent next year rather than the 2 percent seen previously.

(Writing by Tamora Vidaillet; Editing by Victoria Main and Andy Bruce) Keywords: FRANCE ECONOMY/ (tamora.vidaillet@reuters.com ; + 33 1 4949 5218; Reuters Messaging: tamora.vidaillet.reuters.com@reuters.net )

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