German economic growth slipped to a three-year low in 2008, dragged down by a marked slowdown in exports which analysts expect to continue this year and push the country into its worst post-war recession.
Preliminary data from the Federal Statistics Office this morning showed German gross domestic product (GDP) growth slowed to 1.3 per cent last year, the weakest performance since 2005.
A global downturn has battered German manufacturers, sparking a record decline in exports in November and fuelling fears the economy could sink into a deep recession.
"There's no hope that we'll be positive (in terms of GDP) in 2009. It is likely to be worse. We're expecting a contraction of 2.5 per cent," said Alexander Koch, an economist at Unicredit.
The mid-range forecast in a Reuters poll of 28 economists had been for 2008 real annual growth of 1.4 per cent. In 2007, Europe's biggest economy grew by 2.5 per cent.
Since World War Two, the German economy has never contracted by more than one percent in a year, but some analysts believe there is a risk it could shrink by three percent or more this year.
To counter this risk, Chancellor Angela Merkel's government has assembled two economic stimulus packages worth roughly €81 billion ($108 billion) over two years.
The Statistics Office estimated the economy had contracted by between 1.5 and 2 per cent quarter-on-quarter in the final three months of 2008, which would be the biggest quarterly contraction since German reunification in 1990.
The Office added that there was a statistical drag going into this year of around 1.5 per cent. This implies that even if growth were flat during each quarter of 2009, the economy would still contract by that amount over the full year.
"This is a very, very bad starting position for this year," said Holger Schmieding, an analyst at Bank of America. He had forecast a 2.5 per cent economic contraction in 2009.
"That's now in the optimistic range. A minus of 3 per cent is now also realistic, despite the new stimulus programme," he said. "The package is structured in such a way that it is only set to take effect from the second half of this year."
German engineering orders probably dropped by a record margin in the final quarter of 2008, the VDMA industry association said today. It reported a 30 per cent year-on-year fall in new orders in November.