Slumping exports pushed German gross domestic product (GDP) down 3.8 per cent in the first quarter of 2009, a far steeper drop than economists had forecast and the economy's worst performance since reunification in 1990.
The Federal Statistics Office said the quarter-on-quarter contraction, based on preliminary data, was led by a sharp decline in exports and a drop-off in investment.
The world's biggest exporter of goods since 2003, Germany is suffering more than other advanced economies from a collapse in foreign demand.
“This is a dramatic plunge and a worse start to the year than we could have imagined,” said Juergen Michels, an economist at Citigroup in London.
"It can't get much worse, but not much better either. It is questionable whether the economy will grow again this year.”
The euro fell nearly half a cent against the dollar and German government bond futures ticked higher on the GDP drop, which was far steeper than the 3 per cent contraction predicted by economists in a Reuters poll.
The government slashed its economic forecast for the full year late last month and now expects a 6 per cent contraction, led by a plunge in exports of nearly 19 per cent. It is predicting only meagre GDP growth of 0.5 per cent next year.
The first quarter contraction was the fourth in a row, the first time since reunification that the German economy has suffered so many consecutive quarters of negative GDP.
It suggested preliminary euro-zone GDP for the first quarter, due today 9am, could be worse than the 2 per cent contraction forecast by economists in a Reuters poll.
Despite the bleak start to the year, policymakers and private sector economists see signs the German and broader euro-zone economies are bottoming out.
Reuters