UPDATE 1-IMF sees Seychelles growth sharply down in 2012
* Inflation seen slowing to 5 pct by year-end
* Cuts 2012 growth forecast by 1.2 percentage points (Adds details, background)
VICTORIA, March 13 (Reuters) - Seychelles' economy is expected to grow by 2.8 percent this year, from an estimated 4.9 percent in 2011, hurt by a slowdown in tourism due to the debt crisis in its main source market, the euro zone, the International Monetary Fund said.
The fund, which had previously put the Indian Ocean archipelago's GDP growth forecast for this year at 4 percent, said it also expected inflation to fall this year.
"In 2012, gross domestic product (GDP) growth is projected to slow down ... mainly due to the worsening environment in Europe, Seychelles' main tourism market," the IMF said in a statement late on Monday.
"Moreover, lower exports of services, continued international tensions on international oil markets, and the depreciation of the euro against the dollar are weighing negatively on the external current account balance."
Seychelles undertook a series of economic reforms in late 2008 to liberalise its once highly-controlled economy after it defaulted on a Eurobond interest payment amid an acute balance of payments crisis.
The IMF said that with appropriate macroeconomic policies, Seychelles' inflation was expected to slow to 5 percent by the end of this year from 5.5 percent at the end of 2011.
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