The French economy, Europe's third largest, will slip into its first recession in 16 years in the first quarter and business confidence and manufacturing may weaken in the coming months, the Bank of France said.

French gross domestic product will shrink 0.6 percent in the three months through March, the Paris-based central bank said yesterday in a report. The bank previously said the economy contracted 1.1 percent in the final quarter of last year.

"The outlook for the next months is negative and the worrying part is that we see no improvement in inventories, and companies have no intention to invest or hire," said Laurence Boone, chief French economist at Barclays Capital in Paris. "Households, like companies, are waiting."