* Cbank says Greece needs to focus on cutting spending
* Greek economy to grow 0.5 pct this year
* Central bank says economic reforms must continue (Adds quotes, background)
ATHENS, June 12 Greece needs to focus on cutting government spending and improving the tax administration over the next five years, the central bank said on Thursday, echoing the country's international lenders.
In its twice yearly monetary policy report, the Bank of Greece maintained its forecast that the 183 billion euro economy would expand by 0.5 percent this year.
But it also warned that there was no room for "complacency" on the country's reform drive and said lowering the tax burden on firms and individuals would help investments to recover.
"To avert risks, reforms and the economy's restructuring must continue with stronger decisiveness in all areas," the report said.
"Any backtracking or reversal of the current policy would lead to a new exclusion from the markets and bring back the country to a phase of economic instability," the Bank of Greece said.
Greece's economy, set to emerge from a six-year recession this year, could even top the bank's forecast of mild growth if confidence in the country's prospects continued, the bank said.
Its forecast is just shy of the government and the country's EU/IMF lenders' estimate of 0.6 percent growth.
After years of harsh austerity Greece has corrected its so-called twin deficits - its budget and current account gaps - and managed to return to bond markets after a four-year exile by raising 3 billion euros from the sale of a five-year bond.
The Bank of Greece said confidence in the economy's prospects is gradually recovering with markets discounting an exit from its worst peacetime financial crisis.
It said consumption, the main driver of gross domestic product, is stabilising and rising revenue from tourism should help boost economic activity this year. But recovery will also require a rise in investment and faster growth in exports.
Greece's economy shrank 0.9 percent in the first quarter from a year earlier, its slowest pace since late 2008 when its protracted recession began, supporting projections that Athens will emerge from a crippling six-year slump this year.
While both consumption and net exports rose year-on-year, gross capital investment fell 7.9 percent. (Reporting by George Georgiopoulos; Editing by Susan Fenton)