* Hungarian, Czech, Slovak, Romanian, Bulgarian Q1 GDP falls
* Weak data mirror bigger-than-expected German GDP fall
* Romanian, Bulgarian c/a deficits shrink, Czech surplus
bigger than expected
* Policymakers see crisis easing
(Adds IMF, Czech cbanker, Slovak FinMin)
By Krisztina Than
BUDAPEST, May 15 (Reuters) - East Europe's economies shrank faster than expected in the first quarter after imploding demand in key export markets hit industries, but policymakers saw signs of nearing the bottom despite depressing data from Germany, the main customer abroad for the region's products.
Hungary's economy contracted by an annual 6.4 percent, the biggest fall since the country began publishing quarterly figures in 1996, and more than the 5.9 percent drop analysts had expected, data showed on Friday.
Neighbouring Slovakia, which had one of the highest growth rates in the European Union in the past few years, posted a 5.4 percent annual fall in real GDP compared with 2.5 percent growth in the fourth quarter of last year, as demand for its exports, mainly cars and electronics goods, plunged.
The Czech economy contracted by 3.4 percent while the Romanian economy shrank by an annual 6.4 percent in the first quarter, more than double the pace economists forecast.
"Recent and upcoming GDP releases point to most countries in the region being mired in a deep recession. This morning's Czech data was dismal, as was the Hungarian data," said Gyorgy Barta, analyst at CIB Bank in Budapest.
"The regional trend is not surprising at all, especially when we look at core market releases," he added.
The fall in eastern Europe mirrors poor figures from Germany which showed on Friday that its GDP fell by 3.8 percent in the first quarter, steeper than economists' forecast of 3 percent in a Reuters poll.
But policymakers saw some chances of an improvement later this year.
"We expect that the situation will improve in the coming quarters," Slovak Finance Minister Jan Pociatek told a news conference.
"According to our data we may get mildly into positive territory in the fourth quarter."
Czech central bank chief Zdenek Tuma told Reuters Television the data was "not so bad".
"When you look at our forecast, we expected the biggest hit would be really into the first quarter and then on a quarterly basis we expect some evening out of that recession. So I'm not surprised," he said.
Investors mostly shrugged off the data on Friday, with currencies mixed but steady against the euro but still posting losses for the week.
Eastern Europe's economies are suffering not only from a blow to their exports but domestic consumption is also hit by slowing bank lending and in some countries like Hungary by government measures to curb the budget deficit.
The recession erodes revenues and Hungary is currently seeking an agreement with the International Monetary Fund and the European Union to raise its deficit target this year, as more austerity measures could only stifle the economy further.
"What we should look at is the best macroeconomic path to get out of this crisis in the fastest possible way and in a sustainable way and that is what this government is proposing (to the IMF and EU)," Prime Minister Gordon Bajnai told reporters on Friday.
"We are very close to finding a final agreement with the Hungarian authorities which has to take into account the fact that they are now evolving in a global environment which is a little worse than the one we expected six months ago," IMF Managing Director Dominique Strauss-Kahn said in Vienna.
CURRENT ACCOUNTS IMPROVE
The silver lining in the steep downturn is that it helps adjust external imbalances via an improvement in the trade balance and income balance, and this showed in current account data across the region also released on Friday.
Romania's current account deficit shrank by 82.1 percent in the first quarter, while the Czech current account showed a surplus of 5.68 billion crowns in March, above market forecasts. Bulgaria's current account gap also narrowed.
As recession bites, some central banks in the region are expected to continue cutting interest rates but others, such as the Hungarian or Romanian central banks, have very limited room for manoeuvre due to financial stability risks.
Analysts said the weak Czech GDP data could lead to more easing there, even after the central bank cut rates to 1.5 percent, a new historic low, last week.
"A deeper-than-expected recession along with approaching deflation confirm that the financial crisis and global recession has hit the Czech economy significantly and very quickly," said David Marek, chief economist at Patria Finance.
"This shows there really is room for further support of the economy by further lowering of rates," he added.
But Romania's central bank governor said last week that room for monetary easing was limited, and a Hungarian central banker said this week that Hungary's financial vulnerability leaves no room for significant rate cuts.
(Reporting by Reuters bureaus, Writing by Krisztina Than and Jan Lopatka; Editing by Stephen Nisbet)