(Adds details, background, analyst's comment)
* Industrial output falls 2.7 percent in October
* Weaker U.S. demand, slip in oil weigh
* Data points toward recession
By Jason Lange
MEXICO CITY, Dec 17 (Reuters) - Mexican industrial output fell sharply in October as a recession in the United States slashed demand for factory exports and forced massive lay-offs nationwide, data showed on Wednesday.
Poor countries across Latin America, Asia and Eastern Europe are suffering because consumers in rich nations are curbing their spending.
The output of Mexican industry, which depends on the U.S.
market, fell 2.7 percent in October from a year earlier
The slump in output, which was the sixth straight month of decline and the worst reading for October since 2001, was also due to a slip in oil production and construction.
The data strengthens the case that Mexico's economy will enter recession, and many economists expect the economy to contract next year for the first time since 1995.
"Whichever way you cut it, things are going to be pretty bleak for Mexico for a while," said Neil Dougall, chief economist for emerging markets at Dresdner Kleinwort in London. He expects the economy to shrink 0.2 percent in 2009.
Mexico sends about 80 percent of its exports to the United States, where the collapse of the housing market and tighter credit are blunting Americans' appetites for factory wares.
"Around the world, there isn't any demand," steelmaker Altos Hornos de Mexico said in a recent filing with the Mexican stock exchange in which it announced lay-offs for 8,500 workers hired to modernize its operations.
Manufacturing output fell 2.2 percent in October from the
same month in 2007, the statistics agency said. Overall
industrial production
Growth is also suffering because of a sharp drop in oil production, which makes up nearly a fifth of exports and provides about a third of government revenue.
Mexican oil output fell 7.9 percent in October from a year earlier, state oil monopoly Pemex reported last month.
The central bank thinks economic growth will be as low as 0.5 percent in 2009, and Wednesday's factory data puts pressure on policy-makers to lower interest rates as soon as next month, 4CAST analyst David Duarte said in a note to clients.
Industry's malaise is already spreading throughout the economy as laid-off factory workers have less to spend on televisions and other consumer goods. Consumer confidence is stuck near historic lows.
Factories have cut about 175,000 salaried jobs through November of this year -- about 5 percent of total jobs in the manufacturing sector, according to social security data.
In the industrial state of Guanajuato, workers in the export-oriented auto sector are nervous a major U.S. automaker could fall into bankruptcy.
General Motors
"There is a lot of worry that they will cut more jobs," said Dimas Rangel, a union leader for auto parts suppliers in the region. (Editing by Dan Grebler)