BERLIN, March 23 (Reuters) - Commerzbank sharply cut its forecast for the Germany economy on Monday, saying it now expected a contraction of 6 to 7 percent in 2009, easily the gloomiest outlook of any leading bank or think tank.
Commerzbank had previously predicted that Europe's largest economy would shrink by 3 to 4 percent this year, but its chief economist Joerg Kraemer reviewed that forecast after a dramatic drop in January industrial orders and production.
Orders slumped 8 percent and output by a record 7.5 percent in January, reinforcing the view among economists that the economy could shrink more in the first quarter than the 2.1 percent contraction in the fourth quarter of 2008.
Kraemer said in a note to clients that he now expected the economy to shrink by 3.5 percent in the first quarter.
Commerzbank also cut its expectations for the broader euro zone and now expects a contraction of 4.5 percent, compared with a prior forecast of a fall of 2.5 to 3 percent.
The bank is predicting that the French, Italian and Spanish economies will contract by 3.5 percent, 4.5 percent and 4.6 percent, respectively this year.
The German government is forecasting a contraction of 2.25 percent in 2009, although Finance Minister Peer Steinbrueck said last week that a bigger decline was possible.
Until now, the gloomiest forecasts for the German economy had been calling for a contraction of around 4 to 5 percent this year.
Commerzbank is forecasting modest growth in Germany of 0.5 percent in 2010.
(Writing by Noah Barkin; editing by David Stamp)