Berlin - The German Government warned Wednesday of a surge in unemployment after it slashed its 2009 economic projections as Europe's largest economy faces up to its biggest downturn in 60 years. Berlin now expects the nation's economy to shrink by a dramatic 6 per cent this year before the country's GDP returning to growth in 2010 with feeble 0.5-per-cent expansion rate on the back of government stimulus plans.

In the meantime, the government predicts that unemployment will jump by 900,000 next year.

This raises the risk of Chancellor Angela Merkel's government heading into an election set down for September against the backdrop of sharply rising unemployment.

At the start of the year, the government said it expected the nation's economy would contract by 2.25 per cent.

But since then the global recession has tightened its grip on the country's economy with economists revising down their GDP estimates amid the release of data showing a sharp contraction German production, order books and exports.

"The economic backlash that we are expecting this year, is largely a result of the massive world economic downturn and the consequent steep decline in exports," said German Economics Minister Karl-Theodor zu Guttenberg.

He said that Germany's two fiscal stimulus programs, totalling about 81 billion euros (106.9 billion dollars), meant that the nation had made an exemplary contribution to easing impact of the downturn the nation's economy.

Up until now, government subsized short-term work contracts have helped companies avoid mass lays offs despite the weakening economic conditions.

However, Berlin now expects the nation's jobless queues to swell by 450,000 to average 3.7 million this year before jumping to about 4.7 million in 2010.

German unemployment data to be released Thursday is forecast to show the numbers out of work rising by a seasonally adjusted 60,000 in April after recording a 69,000 increase in March.

This is also despite a steady stream of forward-looking economic sentiment surveys pointing to expectations of a turnaround in both the European and the German economies as the year unfolds.

However, Berlin is warning about a decline across all key sections of the economy, including private consumption, corporate investment and the building business.

It expects real exports for the world's leading export nation to plunge by 18.8 per cent in 2009 after growing by 2.7 per cent in 2008. By 2010, however, signs of recovery should emerge with exports projected to rise by a meagre 0.9 per cent.

Likewise, the government projects domestic demand to fall 1.5 per cent this year before edging up by just 0.2 per cent in 2010.(dpa)