The US economy shrunk by 6.1 per cent in the first quarter of 2009 as cuts by businesses and a drop in exports continue to fuel the US recession.

The drop in gross domestic product (GDP), reported by the Commerce Department on Wednesday, was much steeper than the 4.9 per cent annual rate predicted by economists.

US exports plunged by 30 per cent, the biggest decline since 1969, as international buyers cut back in the face of economic troubles in their own countries, the report said.

And investment in businesses also fell by 37.9 per cent, while investment in housing slumped by 38 per cent, the biggest decline since the second quarter of 1980.

The Commerce Department said the government's $787bn stimulus package, approved in February, had had little impact on the first-quarter's GDP.

Budget passed

However, in better news for the administration of Barack Obama, the US president, both the US Senate and the House of Representatives passed a revised proposed $3.4trn budget on Wednesday.

Both the House and the Senate had already approved their own separate versions and Wednesday's draft was a compromise between the two.

However votes were split along party lines, with Republicans in both the House and Senate refusing to back the draft budget because they say it raises taxes.

The US is facing its worst economic crisis since the 1930s following the subprime mortgage scandal, when many US citizens took out high interest loans they were unable to repay, sparking a wave of mortgage defaults, foreclosures and bank collapses.

More than five million people have also lost their jobs in the US since the recession began in December in 2007.

And in the last three months of 2008, the US economy shrank by 6.3 per cent, the worst fall in 25 years.

Recovery hopes

However the report also said that consumer spending had risen by 2.2 per cent, the largest rise for two years.

And some analysts remained confident that the economy would grow again in the final quarter of this year.

"The recession was bad in the first quarter but won't be as bad going forward," said John Silvia, chief economist at Wachovia, a US bank.

"I don't think this lessens the expected pattern that the economy will be entering a recovery by the end of this year."

The recent outbreak of the swine flu, which started out in Mexico and has spread to the US and elsewhere, could also impact on the economy if trade declines and consumers cut spending.