The state economy is still contracting, but an economic index released by the University of Massachusetts projects that the rate of decline is becoming less severe.

According to the MassBenchmarks Current Economic Index, the state economy declined at an annualized rate of 4.2 percent in the first quarter of the year—less than the 4.7 percent decline in the fourth quarter of 2008. The index also forecasted declines of 3.1 percent in the second quarter and 2.8 percent in the third quarter of 2009.

But despite the encouraging projected trend, economists said that the news was far from positive.

“We don’t appear to be in free fall anymore,” said James H. Stock, the chair of Harvard’s economics department, who also helped develop the methodology behind the index a decade ago. “But we’re probably going to see continuing declines in Massachusetts for at least several more months.”

In contrast to the figures for Massachusetts, the Commerce Department reported Wednesday that gross domestic product in the U.S. shrank at a rate of 6.1 percent in the first quarter, a figure worse than what economists had anticipated.

Economists and local officials said they were not surprised that the economy of Massachusetts is contracting at a slower rate than the nation’s as a whole.

Harvard economics Professor Kenneth S. Rogoff said that the state was less hard hit by the recession due to the prevalence of biotech, healthcare, and education industries, which are more stable and resilient to the business cycle.

But he added that there is still a “serious recession here.”

City Councillor Sam Seidel said Cambridge has fared “pretty well” in the recession, and that he hoped the report was the first indication of an upturn in the national economy.

In order to foster economic recovery, Seidel said the state government should help the banking industry, make long-term investments in infrastructure, and support people who were negatively impacted by recession through basic social supports.

According to MassBenchmarks Co-editor Alan Clayton-Matthews, the current index looks at gross state product, employment, unemployment rate, state withholding taxes, and state sales taxes, while the leading index takes into account consumer confidence and initial unemployment claims, among other indicators.

—Staff writer Liyun Jin can be reached at ljin@fas.harvard.edu.