France has raised its budget deficit forecast for 2002 to 2.8% of gross domestic product (GDP), one day after the European Commission issued the country with an "early warning" over its existing deficit.

The government of the eurozone's second biggest economy had previously forecast a 2.6% deficit this year.

The Commission, which polices the European Union's Growth and Stability Pact, on Tuesday also warned Germany it faced sanctions because its budget deficit is likely exceed the agreed upper limit of 3% this year.

We will react once we have received the draft budget itself and the stability programme

European Commission

French budget Minister Alain Lambert told reporters, after presenting a mini-budget to his cabinet colleagues, that his government was sticking to its forecast of a deficit of 2.6% next year.

"We will do what is needed in 2003 so that there is no deterioration in the deficit voted by the National Assembly," Mr Lambert said.

Commission no comment

Mr Lambert also reaffirmed the government's growth forecast of 1% for this year.

France's mini-budget showed a shortfall in the unemployment benefits and tax receipts which would each add 0.1 percentage point of gross domestic product to the total public deficit.

The Commission recently forecasts that France's deficit would hit 2.7% this year and 2.9% in 2003, close to the 3% limit of the Stability Pact.

It took into account the unemployment benefit deficit, but not the shortfall in tax income.

"We will react once we have received the draft budget itself and the stability programme," a Commission spokesman said after the French announcement.

The second upward revision of the 2002 forecast has fuelled fears France will breach the deficit ceiling next year.