Germany's economy relies heavily on exports

The German economy shrank by 5% in 2009, hit by a slump in exports and investment, official data has shown.

It was the first time in six years that the economy had shrunk, and it was the largest contraction since World War II, the Federal Statistics Office said.

Germany, Europe's largest economy, emerged from recession in the second quarter of 2009.

The government predicts growth of 1.2% in 2010, but reports suggest it is set to raise its forecast to 1.5%.

The worst postwar performance to date was a 0.9% decline in gross domestic product (GDP) in West Germany in 1975.

The worst since 1990's reunification of Germany was a 0.8% fall in 1993.

Economists were cautiously optimistic about Germany's growth prospects.

"The recession is yesterday's story; today's story is the ongoing recovery," said Carsten Brzeski at ING Financial Markets.

"Today's numbers, however, mask a slowdown of the rebound in the fourth quarter.

"Despite all government stimulus packages, the deterioration of public finances has been much more limited than in most other eurozone countries.

"Looking ahead, the recovery will continue this year. With GDP growth above 2%, we expect the German economy to be the growth engine of the eurozone in 2010."