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(Adds quotes from economist, Ford manager; adds byline)
By Jason Lange
MEXICO CITY, Nov 11 (Reuters) - Mexican industrial output shrunk in September at the slowest annual rate since late last year, a fresh sign that Mexico's economy is recovering from a deep recession.
Output MXIPY=ECI dropped 5.7 percent compared with September 2009, the national statistics agency said on Wednesday. That was more moderate than the 6.5 percent decline forecast by analysts.
Mexico's economy nosedived early in the year as the U.S. recession choked off demand for cars, refrigerators and other goods made south of the border.
However, the rate of decline has been easing in recent months. In further evidence of a rebound, industrial output MXIP=ECI edged up 0.15 percent in September from August.
"This suggests that the second half of the year is likely to show an improvement compared to the horrible first half," said Bertrand Delgado, en economist at RGE Monitor in New York.
Orders from the United States have risen slightly in the last few months for the turnstiles and other security goods made at Mexican firm CIDET's factory just north of the capital, though sales are still below where they were this time last year.
"We don't have any new clients, but our regulars have made slightly bigger orders recently," said Agustin Alfonseca, who is in charge of distribution at CIDET.
Mexico's economy entered recession in mid-2008 as the factory slowdown fueled an upward spike in unemployment that led Mexico's consumers to cut back on retail purchases.
After several months of double-digit declines earlier in the year, September's fall in industrial output was the most moderate since November 2008.
Mexico's economy is expected to contract 7.2 percent in 2009, according to a recent central bank poll of economists. That would mark the country's steepest economic contraction since 1932.
The central bank thinks Mexico climbed out of recession in the third quarter on higher U.S. demand for exports. The bank forecasts growth of about 3 percent in the July-September period from the previous quarter.
Economists, however, think some of that growth was likely derived from a surge in the auto industry after the U.S. government gave Americans cash incentives to buy new cars. Some of the gains in sales registered in recent months could lead to lower demand from U.S. consumers later in the year, they say.
Mexico is one of the world's leading car manufacturers and its auto output has risen for four straight months through October, though production remains well below last year's levels.
George Pipas, sales analysis manager for Ford Motor Co (F.N) in Dearborn, Michigan, said output at the U.S. automaker's Mexican plants appears to have turned a corner, though a sustained rebound will need healthy U.S. consumer spending.
"We expect to see a modest recovery," he said. "But heck, it depends on the U.S. economy."
Ford, nonetheless, is still investing in Mexico. The company plans to open a diesel engine plant next week in the northern Mexican state of Chihuahua.
In a separate report, the statistics agency said Mexico's gross fixed investment, a measure of spending on machinery, equipment and construction, slid 11.2 percent in August from the year-ago period.
Analysts had predicted a decline of 12.1 percent, according to the median of a Reuters poll. (Additional reporting by Michael O'Boyle and Mica Rosenberg; Editing by Kenneth Barry)