FRANKFURT (AP) -- Germany's Institute for World Economy said Thursday it expects the global economy to shrink 0.8 percent this year, the worst rate since the Great Depression, with the German economy contracting by 3.7 percent.
The institute, based in the University of Kiel, said the forecast for Germany is worse than the 2.7 percent contraction it had forecast in December.
It said output in the world economy fell more sharply in the fourth quarter of 2008 than the institute had previously anticipated and that the recession in Germany would therefore be deeper than expected.
"(German) GDP will decline by 3.7 percent in 2009," the institute said in its release. "In the course of this severe recession, hours worked will fall sharply. At the end of 2009 we expect the number of unemployed to be higher. For the annual average, this implies an increase ... to 3.6 million," in Germany, the institute said.
The institute said production in Germany and the world is likely to rise in 2010, though momentum will be low.
"Investment will pick up as a result of very low interest rates and falling tensions on international financial markets. We expect the European Central Bank to cut interest rates in the euro area to 0.5 percent in the course of 2009 and to keep them at that level in most of 2010."
The ECB's current main interest rate is 1.5 percent.
"(German) private consumption is likely to rise as real disposable income of private households rise due to tax cuts and increasing profit income. Still, the level of GDP in 2010 will not be higher than that in 2009," the institute said.
The institute said it saw Germany's GDP falling a further 0.1 percent in 2010, while it forecast the world's GDP to rise 2.1 percent next year.