INSEE had previously forecast the French economy would stagnate in 2013, while the government is still pencilling in 0.1 percent growth.
The forecast for the unemployment rate in mainland France to climb from 10.4 percent to 10.7 percent over the year is unwelcome news for President Francois Hollande, who has pledged to begin bringing down joblessness in 2013.
INSEE sees only limited improvement in French economic performance in the second half of this year.
After dropping by 0.2 percent in the first three months of this year, the French economy should rebound by 0.2 percent in the second quarter, then stagnate in the third and expand by 0.1 percent in the fourth, said INSEE.
It sees external demand, particularly from Germany, helping pull up exports in the second half of this year.
Consumer spending, the traditional motor of the French economy, is likely to remain stuck in reverse. INSEE sees household purchasing power declining by 0.2 percent this year after dropping by 0.9 percent in 2012.
Furthermore, INSEE expects French consumers to stop dipping into their savings this year and starting to put more money aside.