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The economy shrank at an annual rate of 2.8 percent in the first three months of the year while U.S. corporations suffered their worst profit squeeze since the spring of 1989, the government said Wednesday.

Both the decline in the gross national product, the country's total output of goods and services, and the 6.3 percent drop in after-tax corporate profits were worse than previously estimated.While the downward revisions served to highlight the severity of the recession as 1991 began, a growing number of analysts believe Wednesday's report will be the last one showing the economy in recession.

Many are forecasting that GNP growth will be a modest 0.5 percent to 1 percent in the current April-June quarter.

The economy contracted at an annual rate of 1.6 percent in the October-December quarter, thus meeting the classic definition of a recession as two consecutive quarterly declines in the GNP.

The 2.8 percent drop in the January-March quarter was revised from a 2.6 percent estimated decline a month ago.

The big 6.3 percent drop in corporate profits reflected weaker earnings in a variety of sectors as American businesses continued to feel the pinch of the recession. It followed a 1 percent profit decline in the fourth quarter and represented the biggest profit plunge since a 6.9 percent fall in the spring of 1989.

The government blamed the weaker GNP showing on an even bigger drop-off in consumer spending than previously believed and a larger rate of inventory liquidation by businesses.