UPDATE 2-Chile's central bank slashes 2009 GDP forecast

(Adds comment from central bank president, details on trade balance and current account deficit; byline)

By Antonio de la Jara

SANTIAGO, May 13 (Reuters) - Chile's economy could shrink by as much as 0.75 percent this year, its first annual contraction in a decade, as the global crisis hits consumer spending and investment, the central bank said on Wednesday.

The bank slashed its 2009 gross domestic product forecast to a range between a 0.75 percent contraction and a 0.25 percent expansion.

In its previous forecast in January, the bank estimated the economy would expand between 2.0 and 3.0 percent this year, and the government had hoped it would be able to maintain that growth through a $4 billion fiscal stimulus package.

While Chile's economic outlook has worsened, activity will begin to pick up in the second half of the year, the bank said in its Monetary Policy Report, which comes out every four months.

"In the course of the second half of 2009 and during all of 2010, the economy's annual (growth) rates will become positive again," Central Bank President Jose De Gregorio told a Senate committee in televised remarks.

He cited heavy monetary and fiscal stimulus as well as Chile's strong economic fundamentals as driving the projected recovery.

In the report, the bank slashed its 2009 inflation forecast to 0.6 percent from 3.1 percent and said further cuts to its benchmark interest rate may be necessary. This rate is already at a historic low of 1.25 percent.