UPDATE 4-Mexico to resist U.S. slowdown with lower growth

(Recasts, adds lower government growth outlook)

By Adriana Barrera and Noel Randewich

MEXICO CITY, Jan 11 (Reuters) - The Mexican economy can weather an expected U.S. slowdown this year but growth will be crimped due to Mexico's heavy reliance on its northern neighbor, the government and central bank said on Friday.

The United States is by far Mexico's largest trading partner, buying about 80 percent of all exports, and in the past when the U.S. economy has slumped it has hit the local economy too.

Several years of financial stability and windfall additional income from sky-high oil prices and billions of dollars of remittances from Mexicans working abroad have made Mexico less vulnerable to any U.S. downturn.

"We can expect that the Mexican economy is going to be able to resist fairly well this period of slowdown in the United States," Central Bank Gov. Guillermo Ortiz said in a speech at an economic event.

But Finance Minister Agustin Carstens said he will revise down his 2008 economic expansion forecast of 3.7 percent once he has January data in his hands because of the U.S. economic slump, which some economists predict will become a recession.

Carstens said private sector estimates of slightly more than 3 percent were more in line with this year's growth prospects.

"The outlook for the economy in general, without doubt, is affected," Carstens told the same economic forum.

"This (U.S. slowdown) allows us to think about lower economic growth than we had estimated," he said. "We would be revising our estimate soon. In principle, the current private sector forecast of around 3.3 percent is reasonable."

INFLATION PRESSURES NOT WIDESPREAD

On inflation, Ortiz said pressures were not as widespread as believed and the impact on prices of a new corporate tax law passed last year should be less than previously thought.

Ortiz also ruled out any inflationary impact from a rise in gasoline prices imposed Jan. 1 and played down the effect of price rises in staple foods such as tortillas.

"Probably the impact of the corporate tax will be less than we had incorporated in our forecasts. We have to be revising them constantly," Ortiz said.

The bank had previously said inflation would be driven above 4 percent for much of 2008, in part by a landmark tax reform that will raise about $11 billion in extra fiscal income, largely from companies.

Banco de Mexico had said companies would probably pass on some of their extra costs to consumers by charging higher prices for products and services, sending inflation above the bank's 3.0 percent inflation target.

Ortiz said tortillas, which are eaten more widely than bread in Mexico, were not causing inflation.

"There is no latent pressure in the tortilla issue," he added.

Ortiz's comments come a day after Mexico's leading retailers agreed to cut prices on 300 household goods, ranging from eggs to shampoo, to the end of March as part of a government-backed plan to fight inflation.

Supermarket chains also agreed on Thursday to freeze the price of tortillas, although private tortilla producers can sell the staple at the price they wish.

Mexican inflation was 3.76 percent in 2007, one of its lowest levels in years. (Writing by Chris Aspin; Editing by Diane Craft)