UPDATE 1-Chile's economy to contract between 1.75% and 0.75% in 2023, cenbank says

(Adds quotes from central bank, photos)

SANTIAGO, Dec 7 (Reuters) - Chile's central bank on Wednesday said the country's economy is set to contract between 1.75% and 0.75% in 2023, as recession looms in the world's largest copper producer after a rapid post-pandemic recovery.

In 2022, however, the Andean nation's gross domestic product (GDP) is seen rising 2.4%, the central bank added, up from a previous estimate of 1.75% to 2.25%.

"The upward revision for 2022 responds to actual data, while the bulk of the downward correction for 2023 and 2024 responds to the new assumption for trend growth," the central bank said in the Monetary Policy Report (IPoM) released Wednesday.

"The activity gap remains high and inflation remains well above the target, both signs that the adjustment process of the Chilean economy is not yet complete."

The bank also projected that there will be several quarters of economic contraction.

"With this, the activity gap will turn negative towards the beginning of 2023," the bank said. "Remaining at these values until the end of the policy horizon, which is necessary for the convergence of inflation to the target."

By the end of this year, annual inflation is forecast at 12.3%, while next year inflation will average 6.6%, ending the year at 3.7%, according to the bank.

Since last year, the central bank has aggressively raised the interest rate to contain inflation.

The report also highlighted that investment prospects remain weak and business expectations remain pessimistic. Despite that, investment increased in the third quarter, concentrated in specific sectors like renewable energy.

The price of copper - the country's main export - would average $4.00 per pound this year, while by 2023 it would be $3.55. (Reporting by Fabian Andres Cambero; Editing by Steven Grattan and Nick Zieminski)