The new forecast for Europe's biggest economy was down drastically from the government's previous prediction, made in mid-October, of 0.2 percent growth.
"There is no precedent in postwar history for this economic decline that we unfortunately have to forecast," Economy Minister Michael Glos told reporters.
He predicted that exports — a key driver of German growth over recent years — would slump by 8.9 percent in 2009.
As the world's leading exporter, "we have profited greatly from upswings in the world economy and obviously, when things go the other way, we are an economy that is particularly affected," Glos said.
The worst postwar annual economic performance to date was a 0.9 percent decline in West Germany's gross domestic product in 1975. The worst since German reunification was a 0.8 percent fall in 1993.
The economy went into reverse in last year's second quarter and slipped into recession in the third quarter.
Glos said Germany's central bank, the Bundesbank, believes the economy shrank about 1.75 percent in last year's final quarter compared with the previous three months as the global financial crisis intensified.
Germany's Federal Statistical Office has said that the economy grew by 1.3 percent last year, only about half the previous year's rate, weighed by rapidly weakening exports.