BERLIN, May 21 (Reuters) - The rate of decline in Germany's private sector eased to its slowest in seven months in May, a survey showed on Thursday, suggesting the economy will shrink only slightly in the second quarter after a record slump in the first quarter.
A flash estimate of the Markit composite purchasing managers' index (PMI), which surveys companies in the service and manufacturing sectors, rose to 44.4 from 40.1 in April.
The headline figure for Europe's largest economy was the highest in seven months, yet was still below the 50 mark which separates growth from contraction.
Chris Williamson, chief economist at Markit, said the PMI surveys pointed to a marked slowdown in the pace of contraction in the economy, which shrank by 3.8 percent in the first quarter -- easily its worst quarter since reunification in 1990.
"We certainly think the worst is over," Williamson said.
"What we're seeing now is that the numbers are turning around to suggest that the Q2 is going to be significantly better than Q1 in terms of that rate of decline," he added.
"For GDP in Germany, we're looking at the moment at about a 0.6-percent decline. That's what, historically, the PMI numbers at this level for the first two months of Q2 would be consistent with," Williamson said.
The manufacturing PMI index rose to 39.1 from 35.4 in April. The services sector PMI index rose to 46.0 from 43.8.
The manufacturing index was dragged down by major job losses in the sector, Williamson said, adding:
"Manufacturing employment in Germany is falling at a far, far faster rate still than services...Manufacturing has really been hammered even though there was some easing in the rate of job losses in May."
By contrast, a manufacturing output index jumped to 42.2 from 34.9 in April.
"The differential between manufacturing output decline and services activity decline has narrowed very sharply compared to what we were seeing at the turn of the year. So we are beginning to see some balance come in for the German economy," Williamson said.
The firmer PMI readings chimed with a more positive tone to other recent sentiment indicators, which have suggested the economic slump is bottoming out.
The ZEW economic institute said on Tuesday its monthly poll of German investors and analysts showed they grew much more optimistic in May that economic conditions will brighten late this year, although they were glum about how things are now.