German gross domestic product grew by 1.3 percent last year, according to provisional figures released on Wednesday by the statistics office Destatis.
In 2007, the biggest European economy had grown by 2.5 percent, and economists polled by Dow Jones Newswires had expected an increase of 1.4 percent last year.
Germany, the world's leading exporter, has been hit hard by the global economic slowdown and the euro's rise in value against the dollar, which have curbed demand for its automobiles, household appliances and machine tools.
GDP shrank by 1.5-2.0 percent in the fourth quarter, which compared with the third quarter, was in line with suggestions from officials in recent weeks but underlined the problems facing Europe's biggest economy.
Berlin still officially expects the economy to grow by 0.2 percent this year but Finance Minister Peer Steinbrück has already warned that it could shrink by up to 1.0 percent. A Finance Ministry source has said the economy could contract by up to 3.0
percent in 2009.
Germany also posted a public deficit equivalent to 0.1 percent of gross domestic product (GDP) last year, improving slightly on the the 2007 figure of 0.2 percent of GDP.
But Steinbrück was quoted by the Financial Times Deutschland on Wednesday as saying that the German public deficit would soar to more than four percent of GDP in 2010, breaching European Union rules.
"We will be well above four percent in 2010," Steinbrück said in an interview with the Financial Times Deutschland. Under the EU's Stability and Growth Pact, eurozone members are bound to maintain public deficits below 3.0 percent of GDP
A sharp increase in deficit spending would stem mainly from an economic stimulus package announced on Tuesday by Chancellor Angela Merkel. At €50 billion ($66 billion), it is the largest since 1945.
The plan includes €17-18 billion in investments in roads and schools, and €9 billion in tax cuts for firms and individuals. Other elements included a €100-billion loan guarantee programme to help German companies hobbled by tighter credit conditions.