“That was the largest quarter-on-quarter decrease ever recorded in united Germany,” the report said.
The gross domestic product in Europe's largest economy was “markedly” down for the third quarter in a row – with the second and third quarter of 2008 each showing a 0.5 percent decrease for GDP, Destatis reported from Wiesbaden.
Economists had expected a decrease of less than 2 percent.
The shrinkage was due to “fixed capital formation and by the balance of exports and imports because the price-adjusted decrease in German exports was much larger than that of imports,” the report said. Household expenditures were also down, meanwhile inventories were up.
Fourth quarter reduction in GDP occurred despite the country's highest level of employment since German reunification, but quarterly employment gains are going down, Destatis said.
The German lower house also on Friday approved Chancellor Angela Merkel's €50-billion ($64-billion) stimulus package aimed at lifting Europe's biggest economy out of its recession.
Merkel's uneasy right-left "grand coalition" cobbled together the package last month after its first 31-billion-euro effort last year drew criticism at home and abroad for being too small.
The raft of measures is Germany's largest stimulus plan since World War II and includes a huge increase in infrastructure spending as well as sweeping cuts in tax and social security contributions.
The world's biggest exporter, buffeted by slumping demand for its goods abroad and weak domestic consumer spending, entered recession in the third quarter of 2008 after two successive three-month periods of negative growth. The stimulus plan forces Germany to take on a huge amount of new debt and Finance Minister Peer Steinbrück has acknowledged his country will next year break EU budget deficit rules.
The package now goes from the Bundestag to the upper house, the Bundesrat, which is due vote on it on February 20. Merkel's government has forecast the economy will shrink by 2.25 percent in 2009.