* GDP seen shrinking 6 percent this year
* Gloomier outlook on global economy, domestic demand
* Revision was expected after deputy econ min comments (Adds background, analyst quote)
By Dasha Korsunskaya
MOSCOW, April 24 (Reuters) - Russia's Economy Ministry expects the economy will shrink 6 percent this year, nearly three times more than previously forecast, a government source told Reuters on Friday.
The first quarter of the year has proved worse than expected -- 1.8 million people lost jobs as retail sales and industrial output plummeted. Deputy Economy Minister Andrei Klepach said on Thursday that the economy likely shrank 9.5 percent in the period, 2.5 percentage points faster than previously expected.
He also paved the way for the revision of the overall 2009 view, saying the IMF's forecast for a 6 percent full-year contraction was "quite realistic".
"That (the Economy Ministry forecast revision) is expected in the light of the comments yesterday from ... Klepach," said Yaroslav Lissovolik, chief strategist for Deutsche Bank.
"Such a revision is based on a more significant GDP slowdown in the first quarter plus a worsening in the retail sales outlook which in itself is a fairly negative factor because it was one of the key drivers of economic growth in recent years."
The Economy Ministry now expects retail sales will fall 4.9 percent this year, the government source said. That is twice as fast as analysts forecast in a Reuters poll.
The news comes a day after the central bank slashed interest rates by 50 basis points in a bid to encourage banks to give more affordable loans to companies and individuals to help pull Russia out of its first recession in a decade.
The forecast will make glum reading for Russia's politicians who, used to years of oil-fuelled economic boom, face the challenge of steering the country out of a crisis and avoiding mass social unrest even as millions lose jobs.
"The new growth assumptions, and yesterday's (rate) cut in the refinancing rate, just affirms that the Russian authorities are acutely worried/focused on the weak growth outlook," said Tim Ash, head of CEEMEA research RBS.
BUDGET WOES
The Finance Ministry has said that a deeper than expected economic slowdown could mean a budget revenues shortfall of an extra 800 billion roubles ($23.68 billion), taking this year's budget deficit to 10 percent of GDP.
"The steeper than expected economic decline poses a risk of extra problems linked to the budget," Deutsche's Lissovolik said, adding that any fall in revenues due to the slowdown could be partly compensated by expectations of higher oil prices.
The Economy Ministry has raised the average 2009 oil price view to $45 a barrel from $41, in line with the performance of Russia's Urals oil export blend for the year to date.
The 2009 and 2010 budget deficits are expected to wipe out Russia's $121 billion rainy day Reserve Fund by the end of next year. Russia has said it could issue a Eurobond in 2010, returning to the international market for the first time in a decade.
The expected size of the issue -- $5 billion -- is not enough to make a serious impact on the finances of the $1.7 trillion economy. But some analysts say signs of deepening economic gloom could prompt Russia to borrow more.
The Economy Ministry still thinks growth will return in 2010, the source said, but the expansion at 3.8 percent will be much less than the 6.6 percent previously expected.
Russia's financial markets showed little reaction to the revised forecasts, with the rouble hanging on to modest gains versus a euro-dollar basket and stocks trading broadly flat.