GERMAN FINANCE minister Peer Steinbrück has warned of "hard times" to come as Europe's largest economy officially slipped into recession yesterday.

Growth in the third quarter slipped by 0.5 per cent, according to figures released yesterday, and, following a 0.4 per cent drop in growth in the second quarter, this qualifies Germany for the official definition of recession: two quarters of negative growth.

"It makes no sense to pull the wool over anyone's eyes; times are going to get harder for Germany," said Mr Steinbrück.

Berlin forecasts 1.7 per cent growth this year and predicts that the economy will come out of recession by this time next year in time to post 0.2 per cent growth.

However, most independent analysts are more pessimistic after being surprised by yesterday's sharp fall in growth. Deutsche Bank analysts in Frankfurt see a "long, drawn-out recession . . . with no respite coming soon".

"We are reckoning with a GDP drop in 2009 of 0.8 per cent," said Holger Schmieding, chief economist of Bank of America.

After avoiding the worst of the credit crunch, the export-dependent German economy has been badly hit by a slowdown in its foreign markets, particularly in its engineering and car sectors.

Siemens AG, Germany's largest engineering company, recorded a drop in profits yesterday and plans to cut 17,000 jobs over two years.

Data released last week showed German industrial production at its lowest since the mid-1990s, with factory orders experiencing their biggest slump since records began 17 years ago.

Carmakers have cut production, temporarily closed factories and appealed for state aid. The government responded by lifting motor vehicle tax for one year for anyone buying a car between now and the end of June 2009.

That measure was criticised as too limited by car companies and by Germany's five economic "wise men". In their autumn report, the government's independent economic advisers called for another package of government spending on roads and new schools.

"The shock waves generated by the financial crisis have hit Germany full on, if later," said the "five wise men" in their autumn forecast presented on Wednesday.