(Adds finance ministry saying recession is most intense on record, 8th paragraph)
By Silvio Cascione
BRASILIA, June 1 (Reuters) - Brazil's economy shrank for a fifth straight quarter in early 2016, but the drop was smaller than forecast due to heavier government spending in the months before a vote to impeach President Dilma Rousseff.
Brazil's economy shrank 0.3 percent in the first quarter from the fourth quarter, statistics agency IBGE said on Wednesday. The contraction was smaller than the 0.8 percent drop expected by economists in a Reuters poll and the 1.3 percent decline in the previous quarter.
The smaller drop, however, did not stir economists' hopes for an imminent economic rebound.
Although some analysts noted they could trim their forecasts for this year's contraction, currently seen at near 4 percent, they said the positive surprise was largely a result of unsustainable government expenditures. Public spending grew 1.1 percent in the quarter, the most since 2013.
The lower house of Congress voted in April to impeach Rousseff on charges of breaking budget rules, as the public sector budget deficit surpassed 10 percent of gross domestic product and a vast graft probe targeted key figures in her government.
"The numbers did not change the perception that the economy will drop sharply this year," said José Francisco Gonçalves, chief economist at Banco Fator. "The economy will only stabilize and stop falling between the fourth quarter and the first quarter of next year."
Brazil's two-year-long recession, already the worst for Latin America's largest economy since the 1930s, could become its most severe on record if that scenario holds, according to official data.
A finance ministry statement said the data showed Brazil was undergoing its "most intense recession in our history." But it added the economy ought to begin the process of recovery in coming quarters thanks to measures recently announced by interim President Michel Temer.
Temer, who took over from Rousseff as she faces a Senate trial, has pledged to reduce Brazil's budget deficit and reignite economic growth by restoring market confidence.
However, Brazilian stocks have fallen nearly 10 percent since he took office on May 12, and two ministers of his Cabinet had to step aside after leaked recordings suggested they worked to halt the corruption probe involving major political parties and state-run oil company Petrobras.
The economy has plunged more than 7 percent from its peak two years ago, in one of the world's most severe downturns since the 2008-2009 financial crisis. GDP fell 5.4 percent in the first quarter from a year earlier.
Production fell in all three main economic sectors - agriculture, industry and services. Exports were a rare bright spot, with an increase of 6.5 percent after a sharp currency depreciation.
Investments fell for a 10th straight quarter, although the 2.7 percent drop was the smallest since 2014.
Household demand dropped by 1.7 percent, the fifth decline in a row, as businesses shed more than 100,000 jobs per month.
"First quarter data are not quite as good as they seem," wrote Neil Shearing, chief emerging markets economist at Capital Economics, in London. "Any recovery, when it does come, will be unusually weak and fragile."
Additional reporting by Camila Moreira and Patricia Duarte in Sao Paulo; Editing by W Simon