* GDP to contract 3.5 percent vs 0.8 percent fall forecast in Jan
* Exports to fall 14.2 percent, imports by 11.7 percent
* Inflation seen at negative 0.2 percent
(Adds details from report, quotes)
LISBON, April 14 (Reuters) - Portugal's central bank slashed its economic forecasts on Tuesday, saying 2009 gross domestic product (GDP) would contract by 3.5 rather than 0.8 percent and warning of sharper falls in exports and imports.
The Bank of Portugal in its spring economic bulletin also changed its outlook on inflation, saying it now expected the main consumer price index to fall 0.2 percent this year versus a previous forecast of 1 percent inflation.
Last year, the Iberian nation's economy posted flat growth and consumer prices rose 2.7 percent.
The bank said that its latest projection "should not be interpreted as a situation of deflation, taking into account its temporary and non-generalised nature".
"During 2009, inflation should diminish from the current levels close to zero to clearly negative values by mid-year, reversing again to positive levels in the last quarter of 2009."
It expected private consumption to fall 0.9 percent this year after a 1.7 percent rise in 2008.
Domestic demand is expected to fall 3.5 percent, it said.
It forecast a 14.2 percent slump in exports and an 11.7 percent fall in imports, sharply revising 3.6 percent and 1 percent drops in its previous forecast.
Analysts said the revisions although sharp were not surprising.
"The GDP revision ... represents a number more aligned with those of main European partners. It couldn't be any other way," said Filipe Garcia, an economist with Informacão de Mercados Financeiros consultants.
Portugal entered recession in the last quarter of 2008, when GDP shrank 1.8 percent from a year earlier. (Reporting by Andrei Khalip and Elisabete Tavares; Editing by Jason Neely)