France's central bank said it expected the euro zone's second largest economy to contract in the fourth quarter.

The Bank of France repeated a prediction that GDP will drop 0.1% in the last three months of the year, compared with the third quarter.

A statistics office report separately showed that the troubles of France's car industry continue to take a heavy toll on overall activity, falling for a 12th month in a row in October.

Industrial output, which had been expected to pick up marginally after a 2.7% fall in October, dipped 0.7% in October versus September levels.

A large part of that was due to a further fall of 4.7% in car sector output.

There is little prospect of an rapid turnaround due to weak demand and overcapacity in the car sector both in France and internationally. PSA Peugeot-Citroen, which plans to shed 10,000 jobs, is idling its Sochaux plant in eastern France for 19 days over the Christmas holidays.

The Bank of France stuck to its prediction of a small drop in fourth-quarter GDP despite news since it first made such a prediction that the French economy had fared better than many predicted in the third, July-September, quarter.

French GDP grew 0.2% in the third quarter, defying the Bank of France's prediction of a 0.1% drop. It also bucked the trend in the euro zone as a whole, which fell into recession with a second quarter of shrinkage in the third quarter.

Germany also secured 0.2% GDP growth in the third quarter but showed signs of weakness too in data today. The trade surplus in Europe's largest economy narrowed in October to its lowest level in over half a year as exports posted meagre growth in the face of weakening demand from the country's recession-hit European partners.

The Bank of France also noted that its industrial climate indicator dipped a further 1 point to 91 in a November survey, although a similar measure of sentiment in the services sector held steady at 91.

Analysts said the October drop in industry output was all the more gloomy because economists had on average been expected a 0.3% rise, largely on the assumption that it had to improve after such a sharp drop in September. But they said there were signs that the economy may have hit bottom.