UPDATE 1-Mexico's economic slowdown temporary - Carstens

Tue Sep 24, 2013 9:44pm EDT

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By Michael O'Boyle

MEXICO CITY, Sept 24 (Reuters) - A slowdown in Mexico's economy, which contracted in the second quarter, is temporary, Central Bank Governor Agustin Carstens said on Tuesday, forecasting growth would recover to levels of around 3 percent in 2014.

Mexico's central bank unexpectedly lowered borrowing costs earlier this month to counter a slump in growth, and many analysts expect a further cut in October after some of the worst storm damage in decades buffeted the economy.

After growth contracted in the second quarter - the first quarterly shrinkage in four years - the government slashed its growth outlook to 1.8 percent this year from a previous 3.1 percent estimate. That was before the storms hit.

"It has without doubt been a complicated first half of the year," Carstens told a business forum organized by Forbes. "We're temporarily in a hole, and I expect we will resume growth."

In August, the central bank cut its 2013 growth outlook to 2 to 3 percent from a previous estimate of 3 to 4 percent.

However, inflation has been cooling and has stabilized, Carstens said.

Mexico's annual inflation rate eased in the first half of September to its slowest pace in eight months, government data showed on Tuesday, giving policymakers more room to again cut interest rates to counter an economic slowdown.

Inflation in the 12 months to mid-September slowed to 3.46 percent from 3.54 percent in the year through mid-August, the third mid-month reading in a row below the central bank's 4 percent ceiling.

Tame inflation and weak growth prompted Mexico's central bank to unexpectedly cut its benchmark interest rate to 3.75 percent earlier this month.

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