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By Dave Graham
BERLIN, May 26 (Reuters) - A record slump in exports and investment sparked the German economy's biggest contraction since reunification in the first quarter, though robust consumer spending helped to soften the blow, official data showed.
Confirming preliminary estimates from earlier this month, the Federal Statistics Office said on Tuesday that gross domestic product (GDP) shrank 3.8 percent quarter-on-quarter and by 6.7 percent year-on-year in the January-March period.
The quarterly and annual declines in GDP were the biggest since German reunification in 1990, and a breakdown of the figures showed that record decreases in exports and investment dragged down Europe's largest economy.
"The only good thing about today's GDP numbers is that they can now be filed away," said Carsten Brzeski, an economist at ING Financial Markets. "It can only get better." Forward-looking indicators in recent weeks have suggested the pace of the downturn -- which the government has forecast will cause the economy to shrink by a record six percent this year -- has eased since the first quarter.
The Ifo institute's German corporate sentiment index rose for a second straight month in May, reaching a six month high. This followed an improvement in the ZEW institute's gauge of analyst and investor sentiment, now at a near three-year high.
A separate report from the GfK market research firm on Tuesday showed German consumer sentiment should hold steady for a fourth month running going into June as growing worries about household finances are offset by a brighter overall outlook.
GfK's forward-looking consumer sentiment index, based on a survey of 2,000 Germans, held at 2.5 in June.
WEAK TRADE
Aside from the household spending figures, the German GDP data offered scant grounds for optimism.
Adjusted for working days, GDP declined 6.9 percent on the year in the first quarter, the Office said.
Exports fell 9.7 percent quarter-on-quarter, while gross capital investment tumbled 7.9 percent, the figures showed. By contrast, private consumption -- boosted in particular by a government car-scrapping subsidy -- rose 0.5 percent.
Net trade subtracted 2.2 percentage points from German GDP in the first quarter, and gross capital investment 1.5 points.
Manufacturers have suffered more than most in the crisis, and economists expect job losses to accelerate during 2009.
Crane maker Demag Cranes AG said last week it was considering laying off up to 750 staff worldwide, more than 10 percent of the Duesseldorf-based firm's workforce.
UniCredit analyst Alexander Koch said the manufacturing slump had probably eased significantly since the first quarter.
"On the other hand, private consumption likely won't support growth in the coming quarters," he added. "The bleak labour market developments and the inevitable backlash in car sales even make another consumer recession likely."
Economy Minister Karl-Theodor zu Guttenberg forecast last month that German GDP could contract a further one percent in the second quarter, and many analysts believe it could take months for the economy to return to sustained growth.
However, Joerg Lueschow, an economist at WestLB, said a partial rebound could already be underway.
"I see a chance of us having growth again in the second quarter, but that would rather be a counter-movement to the slump at the beginning of the year," Lueschow said.
(Additional reporting by Brian Rohan and Kerstin Gehmlich; editing by David Stamp)