France cuts 2012 growth forecast

The downward revision from 1.0 per cent to 0.5 per cent was made to "take into account the deterioration of the economic situation," Prime Minister Francois Fillon told reporters.

But Fillon insisted that "growth will take off again in the eurozone and particularly in France before the end of the first half of the year" largely thanks to measures taken to fight the sovereign debt crisis.

The announcement came as European Union leaders met in Brussels for a summit mainly aimed at finalising a new pact to toughen budget discipline and finding ways to relaunch growth and create jobs as recession looms large over Europe.

Last week the International Monetary Fund said it predicted that the French economy would grow by 0.2 per cent this year and that the eurozone as a whole would fall into a mild recession.

Fillon's comments came after Sarkozy took to the airwaves Sunday to detail reforms aimed at lifting France out of the economic doldrums and boosting his credibility ahead of elections he is tipped to lose to a Socialist.

Opinion polls put Francois Hollande ahead of Sarkozy in the two-round election to be held in April and May, and Monday's lower growth forecast for 2012 was unlikely to boost the president's popularity.

The economy is the dominant issue in the run-up to the election and the economic data is grim.

France earlier this month suffered the humiliation of losing its top triple-A credit rating with Standard and Poor's, unemployment stands at nearly three million, a 12-year high, and public debt is at record levels.

In an hour-long broadcast carried by six channels, Sarkozy unveiled plans he said would help fix the economy.

He announced a hike in sales tax to 21.2 per cent to fund a cut in employer social charges and a 0.1 per cent "Robin Hood" financial transaction tax.

Sarkozy's supporters say he believes the reforms will show that, unlike Hollande, he is courageous enough to do the dirty work to save France from economic meltdown.

His allies on Monday praised his "courageous" plan for new taxes, but analysts said he was risking everything ahead of the re-election battle.

"He's trying everything possible: he's playing the crisis president who can protect and the purposeful president who can change things," said Jean-Luc Parodi of the CEVIPOF institute.

Hollande on Monday denounced Sarkozy's VAT rise as "ill-timed, unjust, unjustified and improvised" and vowed to ask parliament to reverse it if he is elected in May.

Sarkozy's television appearance came a week after Hollande launched his own campaign with a blistering attack on the "faceless" world of finance.

He later outlined his plans to reverse Sarkozy's legacy, promising 20 billion euros ($26 billion) in new spending by 2017, the creation of 60,000 new teaching jobs and 150,000 state-subsidised new jobs for young workers.

An opinion poll last week said Hollande would take 56 per cent of the votes in the second round of the election in May, with Sarkozy scoring 44 per cent.

The president got unexpected support Saturday when centre-right German Chancellor Angela Merkel's party said she would join Sarkozy at campaign rallies in the coming weeks to boost his re-election chances.

Merkel may be worried that a Socialist victory in France could derail the German-led austerity drive -- grudgingly backed by Sarkozy -- that aims to resolve the European debt crisis.