The Bank of France forecast a marginally less gloomy outlook for the French economy in the second quarter and trade figures for April showed a slight narrowing in the deficit.

The Bank of France revised its forecast for the second quarter to show a 0.5% fall in gross domestic product, compared with a previous forecast of a 0.6% drop, while its business sentiment indicator rose to 81 in May from 75 in April.

Its monthly survey of business activity found industrial activity stabilized in May and the services sector stopped contracting but it cautioned that the short-term outlook remained unfavorable for both.

At the same time, monthly trade data for April showed the deficit narrowed to 3.792 billion euros ($5.26 billion) from a revised 4.307 billion because imports of manufactured goods dropped more sharply than exports and lower gas prices brought energy costs down.

Over the past 12 months, the trade deficit has totaled 56.835 billion euros.

Exports fell to 27.0 billion euros in April from 27.5 billion in March while imports were down at 30.8 billion euros against 31.8 billion euros.

"That is pretty much in line with what we see across Europe, namely that the news is becoming a bit less negative," said Holger Schmieding, European economist at Bank of AmericaMerrill Lynch in London.

"The Bank of France survey, of course, is still far below the 100 neutral or long term average line, but the improvement over the last three months is significant," he said.

The government is expected to revise its own official GDP forecast to show a fall of 3.0% in 2009, before returning to 0.5% growth in 2010.

The trade figures contained some positive signs for the euro zone's second largest economy, notably solid sales of pharmaceuticals and better car exports, but deliveries to some of France's main trading partners in the European Union slowed.

The drop in imports also suggested that domestic demand, the main driver of the French economy, was still fragile.

Sales of Airbus aircraft, one of France's most prominent big-ticket export items, rose to 26 for a total of 1.364 billion euros against 19 for 987 million in March.

Analysts often caution that the monthly trade figures are subject to wide fluctuations and figures over the past 12 months, which showed a 22.6% decline in exports and a 19.3% fall in imports, show how far trade has contracted in the global crisis.

"The French economy has not got out of trouble, far from it," said Nicolas Bouzou, of Paris-based consultants Asteres. "Everything suggests that the normalization in activity will be both slow and chaotic," he said.

Adding a warning note, German trade figures also showed a sharp fall in both exports and imports, suggesting that France's biggest trading partner could remain in the doldrums for some time. (Reuters)