While Spain’s financial creditworthiness has grabbed the headlines in the past few months, attention is slowly turning towards France as bleak economic data continues to roll out of one of Europe’s largest and most important economies.

Standard & Poor’s has already stripped France of its AAA credit rating in January, pointing to “systemtic stresses” in the eurozone. The country remains AAA-rated by both Moody’s and Fitch, though with a negative outlook in both cases.

Now both L&G Investments and Carmignac are warning investors they may have underestimated the severe weakness in France’s economy.

Michel Canoy, manager of the £1.3bn L&G Fixed Interest Trust, said France can no longer be considered part of core Europe because of its failure to address its soaring deficit, and he has sold much of his exposure to the country’s debt recently.

“France could spring a very nasty surprise next year. It is aiming to reduce its deficit by 3% in 2013 and 2014 but needs to find €33bn in order to achieve its targets, so the country is facing a massive challenge,” said Canoy.

“We believe growth will come in at -0.5% in 2013, well below the French government’s target of 0.8%. Small and medium enterprises are moving out of France and coming to the UK, which will stunt growth.”

Canoy has moved underweight France in recent weeks, pumping the proceeds into Italian credit, which he believes has a more stable financial position.

“Italy has a huge debt profile but under Mario Monti’s stewardship the deficit targets will be met,” said Canoy.

“To meet the IMA corporate bond sector’s minimum yield requirement we need to take on some peripheral debt, and with Italian corporates and financials looking cheap we believe it is the best one to overweight.”

Edouard Carmignac, the founder of Carmignac Gestion, agrees France is set to slide into recession imminently.

Speaking at his firm’s quarterly investment conference in Paris, the French fund manager said there was no sign of his country beginning the ‘necessary’ structural reforms which are needed to fix the economy.

He pointed to manufacturing indices which suggested France was the worst performing nation out of a group of 20 peers in September, and said a slowdown in business confidence was set to accelerate.

‘Business activity in France is going to plummet in the next few months. We will have to do something,” he said.

France’s economy has failed to take-off since the end of 2011, with zero growth for the last three quarters.

The central bank said last month it was set to contract by 0.1% in the third quarter.