UPDATE 2-Mexico economy may shrink 7.5 pct in 2009 -cenbank

MEXICO CITY, July 29 (Reuters) - Mexico's economy could shrink as much as 7.5 percent in 2009, the central bank said on Wednesday, much worse than its previous forecast, though it revised upward its forecast for 2010. The forecast contraction this year would be Mexico's worst since the Great Depression in the 1930s. Previously, the central bank had been looking for a much smaller contraction between 3.8 percent and 4.8 percent for this year. A collapse in exports to the United States has caused hundreds of thousands of job losses in manufacturing, slashed tax revenues and forced the government to cut spending. "Prospects for growth in Mexico's economy in the remainder of 2009 and in 2010 are predicated on the expectation of a gradual recovery in the U.S.

economy," the central bank said in a statement. "This outlook still faces downside risks." The bank's gloomier 2009 outlook brings its estimates into line with bearish Wall Street forecasts and those of global agencies such as the International Monetary Fund. The central bank raised its forecast for growth in 2010 to between 2.5 and 3.5 percent compared to its previous estimate of between 1.5 and 2.5 percent. Central bank chief economist Manuel Ramos said Mexico's economy would start growing in the third quarter of this year compared to the previous quarter, though annual growth would stay negative in the third and fourth quarters. He said the economy shrank between 10.5 and 11.0 percent in the second quarter compared to the same period in 2008. (Reporting by Jason Lange, Pedro Nicolaci da Costa and Robert Campbell; Editing by James Dalgleish) Keywords: MEXICO ECONOMY/ ([e-mail]; Tel: [phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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