(Adds details, background)
By Brian Rohan
BERLIN, March 10 (Reuters) - Germany's trade surplus narrowed to its lowest level in over seven years in January as exports fell sharply, suggesting Europe's largest economy will suffer another large contraction in the first quarter of 2009.
Preliminary figures from the Federal Statistics Office on
Tuesday showed the seasonally adjusted trade surplus at 8.3
billion euros ($10.5 billion), smaller than the 10.0 billion
euros forecast in a Reuters poll last week
The Statistics Office said the January surplus was the lowest since November 2001, when it stood at 7.35 billion euros.
"Foreign trade is a clear brake on the economy in the first quarter. The bottom level isn't in sight yet," said Torsten Polleit from Barclays.
The euro dipped below $1.27 after the data.
Hit by a sharp drop in exports, German gross domestic product (GDP) declined by 2.1 percent quarter-on-quarter in the last three months of 2008, its worst result since reunification in 1990.
Germany has been the world's largest exporter of goods since 2003, but the economy's reliance on foreign sales has proved a weakness as global demand for its traditionally competitive manufacturing products plummets.
A breakdown of the trade figures showed exports fell by 4.4 percent month-on-month in adjusted terms, compared with the 4.0 percent drop forecast by economists.
Imports fell by 0.8 percent on the month in January, far less than the 3.6 percent decline forecast -- a sign that domestic demand is holding up.
German consumers have among the highest savings rates in Europe and little exposure to slumping stock markets. That has boosted hopes private consumption can provide a cushion for the economy.
TRADE MALAISE
Sebastian Wanke from Dekabank, who is forecasting GDP to fall 1.5 percent in the first quarter, said Germany was suffering acutely from a contraction in world trade that started in the autumn.
"We're still feeling the effects of that shock (but) at the same time, the data are showing that the weakness is mainly coming from abroad because imports are not decreasing as strongly," he said.
Unadjusted data showed the decline in foreign demand for German goods was broad-based, with exports to the euro zone falling 17.4 percent, those to the broader European Union sliding 18.7 percent and sales outside the EU down 24.5 percent.
Other figures from Germany have painted a gloomy picture, although hopes have risen that the economy could begin recovering around the middle of the year.
Corporate sentiment, measured by the Ifo institute's business climate index, fell last month to its lowest level since reunification although business expectations for the next half year rose for a second straight month.
Many firms have been shifting staff to part-time work and unemployment has risen for four consecutive months.
The government expects gross domestic product to contract 2.25 percent this year although some economists are forecasting a fall as steep as 5 percent for 2009. Since World War Two, the economy has never contracted by more than one percent in a year. (Editing by Mike Peacock)