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Mexico’s economy may expand more than expected in 2010 as the nation recovers from last year’s global slump, central bank Deputy Governor Manuel Sanchez Gonzalez said in an interview yesterday.

“Everything points towards the direction of a recovery,” Sanchez said in Sydney. While the central bank forecasts growth of 3.2 percent to 4.2 percent this year, “I’m ready to be surprised as to the results of the economic recovery,” he said.

Mexico’s $1.09 trillion economy was the worst performer in Latin America last year, shrinking 10.1 percent in the second quarter and 6.2 percent in the third quarter from a year earlier. Gross domestic product may expand “slightly” more than the government’s current 3 percent estimate this year, Deputy Finance Minister Alejandro Werner said Feb. 5.

Sanchez is among policy makers visiting Sydney this week to attend a symposium organized by the Reserve Bank of Australia to celebrate its 50th anniversary. The Basel, Switzerland-based Bank for International Settlements is also hosting a meeting of central bank officials in Sydney.

Global policy makers have to be “very careful” about how quickly they withdraw stimulus measures after cutting interest rates and boosting public spending to counter the deepest global recession since World War II, Sanchez said yesterday.

“There is a tradeoff between sustaining the stimulus measures and having some risks as to maintaining those,” he said. “You have a risk of withdrawing too quickly, of leaving those measures too rapidly, so that this recovery may be interrupted. You want to be very careful to maintain those stimulus measures for the right time.”

Inflation Outlook

Central banks also have to remain watchful of inflation and maintain price stability, he said.

“Every country has different situations as to the inflation prospects, but I’m confident also that the inflation pressures will continue to be relatively subdued in the near future,” Sanchez said.

Mexico’s inflation in December was 3.57 percent, the slowest since 2006.

The central bank kept the benchmark interest rate unchanged at 4.5 percent in January for a fifth straight meeting and warned that higher costs for state-controlled goods such as gasoline may fuel broader price increases. The latest monetary policy position is consistent with the central bank’s growth forecasts, Sanchez said.

The region’s second-largest economy probably shrank about 7 percent in 2009, the most since 1932, the central bank estimates.

“I’m very optimistic about the prospects of the Mexican economy in the short term and long term,” Sanchez said. “We had a very harsh recession last year. We’re going to have a very important improvement relative to the base we had last year.”

The fourth quarter probably showed “very good dynamism of economic activity” and the unemployment rate has declined, Sanchez said.

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