The German economy suffered a record contraction in the final quarter of last year, as a manufacturing slump hit exports and dented investment in Europe's biggest economy, dimming the outlook for 2009.
"This shows things went downhill sharply at the end of the year," said Juergen Michels, an economist at Citigroup. "We'll likely head down again in the first and second quarter."
German gross domestic product (GDP) shrank by a bigger-than- expected 2.1 percent quarter-on-quarter in the final three months of last year, its worst quarterly performance since reunification in 1990, preliminary data showed on Friday.
The Federal Statistics Office said the contraction was led by a decline in investment and net trade, as global economic conditions worsened.
Since 1990, Europe's largest economy had never previously contracted by more than 1.2 percent in a quarter, according to Bundesbank data.
Economists polled by Reuters last week had forecast GDP would contract by 1.8 percent on the quarter.
The October-December period was the third quarter in a row in which the economy shrank. The last time was between late 2002 and early 2003. Government officials have already said further contraction is likely in the first quarter of 2009.
Year-on-year, the economy shrank by 1.6 percent after growing by 1.4 percent in the July-September period.
Industry orders and output posted their biggest annual falls since reunification in December as demand for manufactured goods crumbled. Engineering orders fell at their sharpest pace in 50 years in the fourth quarter, industry group VDMA said.
Exports, for years a mainstay of growth, suffered a record fall in November and fell further in December.
The downturn is increasingly spilling over onto the domestic economy. Unemployment is rising again, and is expected to climb fast.
German tourism and retail group Arcandor <AROG.DE> on Thursday dropped its full-year 2008/09 outlook, saying the financial crisis had made the future hard to predict.
"Nobody can say what next week or the week after will bring," Chief Executive Thomas Middelhoff said, noting the firm's sites near large automotive suppliers had been hard hit.
Cars sales have slumped by nearly a quarter globally, and many major German carmakers have cut back production.
Nevertheless, there are some hopeful signs.
Germany's VDIK auto import association said on Thursday new car registrations in the first quarter of 2009 could rise at a double-digit rate on the year, and that government stimulus plans were already having a positive impact on demand.
Moreover, the Ifo institute's gauge of German corporate sentiment unexpectedly rose for the first time in eight months in January, lifted by firmer business expectations.
