By Paul Day
MADRID (Reuters) - Spain fell deeper into recession in the first three months of the year, the seventh straight quarter it has seen its economy shrink, data showed on Tuesday.
Rising exports and weaker imports, reported separately, provided some relief by cutting the trade deficit.
The data showing further contraction will add to a Europe-wide debate about whether countries should tone down austerity programs intended to cut debt in favor of more growth-focused policies, particularly given concern about rising unemployment.
Euro zone member Spain's jobless rate is 27.2 percent.
The National Statistics Institute said Spain's gross domestic product contracted - on a preliminary reading - 0.5 percent in the first quarter from the last three months of 2012, mainly because of sliding domestic demand.
The government, nonetheless, said the worst of the slump has passed and expects quarterly growth before the end of this year mostly because the country has become more competitive and exports are growing.
"All the indicators which look forward in Spain point to recovery, and a much better economy than one year ago," Economy Minister Luis de Guindos said in a radio interview on Tuesday.
A 4.4 percent increase in exports in February and an 8.2 percent slide in imports, helped slash Spain's current account deficit to 1.3 billion euros ($1.7 billion), less than a quarter than that reported a year earlier.
Exports have been the only pillar of support for the sagging economy since 2008 when a property bubble burst, gutting consumer and business confidence and hitting debt.
The Spanish government slashed its economic forecasts for this year on Friday, bringing expectations closer to consensus, though did not announce any significant updates to its reform plan designed to restart the economy.
"We recognize the reforms of the government have been significant, but the problem is the starting position of the Spanish economy was much worse than any other European economies and adjusting in this environment is a lengthy process," said Silvio Peruzzo, an analyst at Nomura.
Nomura sees the recession continuing into 2014 before staging a modest recovery and Peruzzo warned Spanish export growth could be hurt by a weak global economy.
Spain, the euro zone's fourth largest economy, has been on the front line of the bloc's debt crisis because it has one of the region's highest public deficits.
This has prompted Madrid to pass a series of unpopular austerity measures that critics say has hobbled recovery.
On Friday, Brussels gave Madrid the green light to raise its 2013 deficit target to 6.3 percent of GDP from a previous goal of 4.5 percent.
Spain's economy shrank 2 percent on an annual basis in the first quarter, worse than the 1.9 percent registered a quarter earlier.
(Reporting By Paul Day Editing by Jeremy Gaunt)