Berlin - German Chancellor Angela Merkel said Tuesday that she expects the country's economic situation and the consequences of the global economic crisis to worsen in the coming year.

Citing the prospect of rising unemployment, Merkel said "The problems will first get bigger, before they can be improved."

"Germany is facing a test such as it has never had since reunification," the chancellor said at the beginning of her second term in government.

Merkel was addressing the German parliament, or Bundestag, to lay out the programme of her new government, a coalition between the Christian Democrats (CDU/CSU) and the liberal Free Democrats, which took power at the end of October.

"We must overcome the effects of the global economic crisis," Merkel said, adding that major German banks were still dependent on state aid, and that the financial markets were still weak.

Merkel said that the full effects of the crisis would only become apparent in the coming year, repeating that the new coalition would extend government subsidies for the labour market.

The chancellor also blasted General Motors, the parent of major European carmaker Opel, who last week suddenly decided not to sell the firm after months of sale negotiations.

"I greatly regret this decision," Merkel said, adding that Opel workers had been "deeply disappointed".

GM would, therefore, have to pay the lion's share of costs to restructure the ailing carmaker. The German government had promised billions of euros in state aid to Opel's prospective buyer.

Merkel defended her coalitions plans to cut taxes, which have been hit by criticism in the face of rising state debt.

The CDU-FDP coalition would cut income taxes in 2011 as a spur to growth, Merkel said. (dpa)