Economy contracts

The grim outlook for 2009 compares with a previous forecast in January that the German economy would shrink by 2.25 per cent.

The economics ministry said that it expects Europe's largest economy, which went into recession in the third quarter of 2008, to see a return to growth next year with output likely to rise by 0.5 percent.

"The economic decline that we are expecting this year is predominantly the consequence of the massive global slump and the related massive decline in our exports," said Economics Minister Karl-Theodor zu Guttenberg in a statement.

As a result of the downturn, the unemployment figure is expected to rise to around 4.6 million in 2010 up from 3.7 this year.

This year's forecast contraction would be by far the worst since World War II. The worst post-war performance to date was a 0.9 per cent decline in West Germany's gross domestic product in 1975. The worst since German reunification was a 0.8 per cent fall in 1993.