"We must prepare ourselves for a weakening of growth in Germany. But I'm convinced that the slowdown will not prove a long-lasting one," Merkel said in a speech to the Bundestag, the German lower house of parliament.
Merkel appeared before MPs to rally support for the government's €480-billion bank rescue package announced earlier this week. The unprecedented measures are meant to help stabilize Germany's traumatized banking system as part of coordinated international effort to stem the crisis riling the world's financial markets.
The government will provide some €80 billion in fresh capital and some €400 billion in guarantees for interbank lending to avoid a credit crunch and to restore rapidly crumbling faith in the country's banking sector.
Merkel urged the Bundestag to approve the package rapidly to help restore calm to the financial markets and shield the German economy - the biggest in Europe - from further harm.
Some of Germany's 16 states have expressed misgivings about the bail-out plans, since the regional authorities are expected to pony up 35 percent of the money. If enough states object, the package - which was unveiled Monday in tandem with other eurozone countries - may not pass through the upper house of the German parliament and become law by the weekend as Merkel hopes.
Merkel insisted, however, that it was not just about throwing banks a lifeline, but protecting the German economy as a whole.
"The state is the sole entity that can restore confidence between the banks, not in the interest of the banks themselves, but in the interests of our citizens," she said. "I know - never before has so extensive a package of legislation been put forward with such an ambitious timetable. I am aware that a lot is being demanded from all concerned."
Merkel also said that the Group of Eight world industrial powers would hold a summit to deal make sure the global financial markets were on the right track before the end of the year.
"A G8 summit will be held again this year, with the participation of developing countries," she said, explaining that meeting would be part of a series of international meetings in coming months to find a way out of the global financial crisis.
Finance Minister Peer Steinbrück also saw the stability of the financial markets an indispensable "common good." The bail-out would not relieve the banks of their responsibilities, the minister insisted.
"But if there's a fire, it must be put out, even if it was an act of arson," Steinbrück said.
The government has been at pains to stress that the package is not a blank cheque. In return it will take stakes in the banks and demand influence in company decisions, the payment of dividends and even bankers' salaries.
On Tuesday, leading economic institutes warned that the global financial meltdown had pushed Germany to the brink of recession, with Europe's biggest economy set to expand by just 0.2 percent next year at best. The German economy ministry is scheduled to publish its own updated growth forecasts on Thursday and they, too, are expected to show minimal growth of between zero and 0.2 percent in 2009.