Germany's economy shrank by 2.1% in the fourth quarter of 2008 compared to the previous quarter, its worst quarterly performance since 1990.
This was the third consecutive quarterly drop in Europe's biggest economy, according to the initial data from the Federal Statistics Office.
Year-on-year, it shrank by 1.6%, after growing by 1.4% in the third quarter.
Companies have cut investment and exports have dropped as the world economy slows down.
The figures were worse than the 1.8% anticipated by analysts and many are gloomy about the prospects 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 the first and second quarter."
"This number makes it plain that we're in a very serious recession - the most serious since World War Two. It's no surprise that exports and investment have tumbled," said Dirk Schumacher at Goldman Sachs, adding that the rise in inventories did not bode well for the first quarter.
The situation "can hardly get worse," said Carsten Brzeski at ING Financial Markets.
"The German industrial production has run out of steam with companies working only off their backlogs. Foreign demand has plummeted over the last months," he added.
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