The German economy, the world's fourth largest, contracted a sharper-than-expected 0.5% in the third quarter, official data showed on Thursday, following a 0.4% contraction in the second quarter. Industrial orders are in free fall, and business surveys show the trouble has barely begun: Germany is facing what could be its longest recession since the Federal Republic's foundation in 1949.

The figures were released as the Organization for Economic Cooperation and Development gave a bleak forecast for its 30 members, suggesting that GDP will shrink 0.3% overall next year in advanced economies. The U.S.'s GDP will contract by 0.9% next year, Japan's by 0.1%, and the euro zone's by 0.5%, the OECD said. Unexpectedly, Germany is now forecast to be one of Europe's worst, rather than best, performers.

The slowdown unfolding in Germany is different from the declines in the U.S. and the U.K., which are deleveraging after a decadelong credit-fueled boom, economists say. Instead, Germany's troubles show the pitfalls of relying too much on exports and consuming too little at home.

"Germany profited hugely from the global boom in demand for capital goods, but this is not an economy which has developed a domestic engine for growth," says Jacques Cailloux, European economist at Royal Bank of Scotland in London.

The International Monetary Fund predicted last week that Germany's economy will shrink 0.8% next year, a bigger contraction than it foresees for the 15-nation euro currency area as a whole. Among Europe's major economies, only the U.K. faces a deeper recession than Germany, the IMF said.

Just a few months ago, Germans were convinced that their economy -- heavy on old-fashioned manufacturing and relatively light on financial innovation -- meant they had a chance of surviving the global slowdown in better shape than other countries. Germans hadn't run up big credit-card debts. Average house-price growth over the past 10 years has been close to zero, according to UBS.

 Earlier this year, as the U.S. property bubble burst and growth slumped, emerging markets such as China continued to suck up German capital goods, keeping German economic growth healthy. Now export dependence has become Germany's downfall.

"I'm surprised by the speed of the deterioration," says J?rgen Ricking, a management-board member of Felix B?ttcher GmbH, a maker of printing equipment based in Cologne. After years of export-led growth, his entire sector faces a fall in global sales this year of about 20% because of the downturn, he says.

B?ttcher is typical of the way many German manufacturers fit into the global supply chain. It supplies large numbers of rollers for machines used by printing works in China and other countries where books, magazines and other printed materials are made for sale in the U.S.

The U.S. downturn, including a recession in advertising, is reducing demand for printed materials, while Chinese printers face rising costs from higher wages and new labor laws, says Mr. Ricking. "Our Chinese customers are stopping their presses or going bankrupt," he says.

The extent of China's coming economic slowdown isn't clear yet, but one recent indicator isn't good: China just reported its first decline in monthly electricity output in many years.

Japan, the world's second-biggest national economy after the U.S., faces a similar -- if less severe -- predicament to Germany's. Like Germany, Japan has relied on exports for growth, whereas its consumer spending has remained fragile. Japanese firms have tried to keep wages down to stay competitive with rivals from emerging economies. As exports choke up, so does the economy.

Exports play an even bigger role in Germany's economy than in Japan's. Exports of goods account for 41% of Germany's GDP, highlighting a dependence that has grown rapidly in the past 15 years. That's more than twice the ratio in Japan. In the U.S., exports of goods account for less than 10% of GDP. New orders for German exports in September were down 18% from their peak in November 2007, spelling sharp declines in exports in the year ahead.

European Central Bank policy makers appear to be reckoning on a lengthy malaise. Officials have warned that the bank's September projections of about 1.4% annual GDP growth in the euro zone this year and 1.2% next year are likely to be sharply lowered in December.

ECB executive-board member Lorenzo Bini Smaghi said on Tuesday that the bank anticipates euro-zone growth will be flat or negative until mid-2009, when a recovery might start.

Slower growth should damp inflation, which is already declining, and give the ECB more scope for further rate cuts. The ECB joined the U.S. Federal Reserve and four other central banks in a coordinated half-percentage-point cut on Oct. 8, and reduced its key rate by another half-point to 3.25% last week. Most analysts expect the ECB to make another half-point cut to 2.75% in December, and many now predict the bank's key rate will be around or below 2% by the middle of next year.

Many German banks did invest heavily in U.S. mortgage-related securities and other risky assets abroad, and the international banking crisis forced the German government last month to launch a banking bailout fund of up to €500 billion ($624 billion).

Financial-sector woes aren't what's ailing the German economy as a whole, economists say. Instead, demand for loans is fading because firms are cutting their investment plans, Bundesbank figures on bank lending show.

At HAWE Hydraulic, a maker of industrial pumps and valves based in Munich, orders have suddenly turned "very weak" in the last three months, says owner and Chief Executive Karl Haeusgen. After HAWE's sales rose 28% in 2007 -- the last year of Germany's export boom -- Mr. Haeusgen sees a risk of a drop in sales in 2009.

China is among the company's most difficult markets, along with Italy and Spain, Mr. Haeusgen says. Sales in Germany are stable, but 60% of the company's production is for export.

While Germany's labor market has barely felt the impact of the downturn, economists say a return to rising unemployment, Germany's biggest economic headache earlier this decade, is just around the corner. Car makers BMW AG and Daimler AG have announced temporary production stoppages at some factories. The government is offering more generous benefits for staff working unusually short shifts.

Some firms, however, are starting to announce large cuts. Heidelberger Druckmaschinen AG, the world's biggest printing-press maker, said on Oct. 30 that it is thinking of cutting up to 1,900 staff in Germany, out of a total work force there of 13,000.