(Adds central bank, analyst quotes)
By David Mardiste
TALLINN, Feb 13 (Reuters) - The economy of the Baltic state of Estonia shrank by a much worse than expected 9.4 percent year-on-year in the final quarter of 2008, its worst performance ever, the statistics office said on Friday.
The figures confirmed the extent of the downturn in the once booming European Union country and making it only slightly less severe than neighbour Latvia, where gross domestic product (GDP) fell 10.5 percent in the final quarter of 2008.
"This is the first time we have seen a fall so great as this," statistics office official Tonu Mertsina told Reuters. In the third quarter the economy contracted 3.5 percent.
"Value added decreased in the majority of economic activities," the statistics office said in a statement.
Mertsina said the data meant the drop in GDP for the whole of 2008 was 3.6 percent, a sharp reversal from growth of 6.3 percent in 2007.
The central bank said the situation was worsening.
"Because of this (a weakening of demand in export countries) it is possible that this year the fall in economic growth will be bigger than the Estonian central bank's quick estimate forecast of 5.5 percent," it said in a statement.
The bank has already given a worst case scenario drop in GDP this year of 9 percent.
Analysts in a Reuters survey had expected a drop of 5.7 percent in GDP in the fourth quarter, according to the median forecast. The biggest drop expected was 8.5 percent.
Compared to the third quarter, the seasonally and working-day adjusted GDP decreased by 4.2 percent.
The statistics office said a drop in the industrial sector had a "a substantial impact on the decrease of GDP".
Manufactured exports also decreased while a drop in the value added of financial intermediation, which began in the second quarter, accelerated.
Faced with tumbling tax receipts due to the slowdown, the government has already had to lop 8 billion kroons ($652 million) off spending planned in the 2009 budget.
"The first half of 2009 will be very negative, with a negative growth rate of over 10 percent, from -10 to -15 percent is possible," said Swedbank chief analyst Maris Lauri.
"It will take time for the situation to improve. If globally the situation is bad then we cannot expect Estonia will be better," she added. (Reporting by David Mardiste; Writing by Patrick Lannin; editing by Stephen Nisbet)