Weak sales

German retail sales dropped 3.2 percent in the first quarter of 2009. The slowdown is much sharper than analysts had forecasted. Sales of food, drinks and tobacco were down most significantly, according to the statistics office. The only bright spot was in car sales, which were helped by a government program that gave out bonuses to people replacing aging vehicles with new cars.

"On the one hand, the scrapping premium gave a boost to car sales,” Alexander Koch of the Italian bank UniCredit told AFP news agency. "On the other hand, retail sales in other categories exhibited increasing weakness, as the bias towards car sales crowded out other durable good purchases and the increasingly negative labor market outlook already weighs considerably on peoples' willingness to spend."

The sharp drop in retail sales increases the likelihood that the European Central Bank will cut its main interest rate to a record low of 1.0 percent on Thursday. The hope is that the rate cut will give the 16-nation euro zone's economy a further boost.

Experts predict slow recovery for Germany

Meanwhile, one of Germany's leading private economic research institutes predicted that the recession in Germany would bottom out this year. However, the Cologne-based Institute for Economic Research (IW) also said that it didn't expect a fast turnaround.

IW researchers said they expected Germany's GDP to shrink by 4.5 percent in 2009, and grow by a mere 0.5 percent in 2010. Exports, which are expected to decrease by 17 percent this year, have been largely responsible for the decline in the German economy, the institute said.

IW Director Michael Huether also described a regional split in how the recession was impacting the country. He said that Western Germany was suffering more from the downturn than Eastern Germany, as businesses in the east tended to be less international in their focus.