The future for France's economy may be brighter than expected

Most analysts had expected a figure nearer 0.5% and French Finance Minister Nicolas Sarkozy said the result showed that an "upturn is firmly under way".

Rising consumer consumption in the country has offset falls in exports, analysts said.

The French economy is predicted to grow 1.5% in 2004, up from 0.5% in 2003, the national statistics office said.

Jobs concern

The government has recently undertaken a campaign to encourage people to spend more in order to promote growth.

FRENCH GDP GROWTH 2001 2.1% 2002 1.2% 2003 0.5% 2004 1.5% (prediction) Source INSEE

Eric Chaney, chief economist at Morgan Stanley in Paris, said discounting by retailers had also helped to stimulate spending.

"The retail industry has started to understand that if you want to attract consumers you have to cut prices," he told the BBC's World Business Report.

"Now the retailers who are cutting prices are rewarded with stronger volumes."

However, the Paris-based Organisation for Economic Co-operation and Development warned that unemployment could increase to reach 9.9% in 2004, well above the 8.8% forecast for the euro zone.

"So far, we have seen households spending their savings while unemployment was rising," said analyst Stephane Deo at UBS Warburg.

We are on a growth path closer to 2% than 1.7% Michel Devilliers, Insee

"Now, we really need to see a sharp improvement in employment and investment in line with consumption."

There is also concern over the impact of rising fuel prices on any recovery.

Petrol prices have surged 10% since December.

However, economists said the country's economy was still likely to expand above expectations.