(Adds economist comment, background)
By Paul Carrel
BERLIN, Feb 25 (Reuters) - A sharp drop in exports led to a record contraction of German gross domestic product (GDP) in the final quarter of 2008, and the slump looks likely to continue well into this year as a global downturn hits the trade-reliant economy.
The Federal Statistics Office said on Wednesday that the economy shrank by 2.1 percent in the final three months of last year, its worst quarter since reunification in 1990. The figure was in line with a preliminary estimate published earlier in February.
The October-December period was the third quarter in a row in which the economy shrank. The last time this happened was between late 2002 and early 2003. Government sources have already said further contraction is likely in the first quarter.
"The outlook for the current quarter is anything but good," said Ulrike Kastens, economist at Sal. Oppenheim. "There are still no signs of a recovery."
The government expects the economy to contract by 2.25 percent this year. Since World War Two, Germany's economy has never contracted by more than one percent in a single year.
The fourth-quarter contraction was led by foreign trade, which shaved 2.0 percentage points from the quarterly growth total, the Office said.
Exports fell by 7.3 percent, the biggest decline since the second quarter of 1991. Imports declined by 3.6 percent.
The negative GDP contribution from foreign trade highlighted the impact the global downturn is having on Germany, which as the world's biggest exporter of goods had enjoyed booming foreign demand until earlier last year.
"Germany is really feeling the worldwide recession on the export side. Private consumption, on the other hand, did not fall back as strongly as feared," said CitiGroup economist Juergen Michels.
Private consumption, which has been cushioned from the impact of the global downturn by falling energy prices, shaved just 0.1 percentage point from the quarterly growth total.
"We shouldn't expect much good news in the first quarter," added Michels. "A stabilisation is only expected towards the end of the year."
The auto sector, which accounted for the biggest chunk of German exports in 2007, is feeling the brunt of the downturn.
Assembly lines at some Volkswagen
Scaled-back production at six VW brand plants in western Germany and one plant in eastern Germany affected 61,000 workers as VW aimed to keep inventories of unsold cars from piling up.
On an annual basis, GDP shrank by a workday-adjusted 1.7 percent in the fourth quarter.
Inventories added 0.5 percentage points to the quarterly GDP growth total, but an unwinding of stocks is likely to hit the first quarter 2009 result, economists said. Gross capital investment subtracted 0.5 percentage points in the fourth quarter.
"Given the downside momentum in manufacturing and the cold weather, we are likely to see a similarly ugly figure in the first quarter," said UniCredit economist Alexander Koch.
For a table with details of the GDP figures, double click on [ID:nBAE001609]
(Additional reporting by Noah Barkin and Brian Rohan; editing by David Stamp)