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The Federal Statistical Office in Wiesbaden said the economy shrank about 0.5 percent in the last three months of 2012, compared to the previous three months. While analysts expected a decline, that figure was more than expected.

Still, economists expect the German economy, Europe's largest, to resume growth quickly this year as some of the fear about a breakup of the euro zone subsides. German managers had been afraid to risk investing in new projects, but recent surveys have shown they are becoming more confident.

In addition, German exporters are likely to be among the first in Europe to benefit from stronger growth in the United States and Asia.

"Businesses have clearly held back with investment because they were unsettled by the sovereign debt crisis," Jörg Krämer, chief economist at Commerzbank, wrote in a note to clients. But he added, "The German economy should expand again in the first half of this year."

The powerful German economy has served as a crucial counterweight to the struggling economies of southern Europe, and helped to stabilize the euro zone as a whole. But Germany's economic strength has also created tensions. Leaders of other European countries have complained that Germany does not buy enough products from its neighbors. And the country's economic might has given Chancellor Angela Merkel an especially strong say in euro zone policy, sometimes stirring resentment.

For the full year, German gross domestic product grew 0.7 percent after adjusting for inflation, much slower than in 2011 when the economy grew 3.1 percent, the statistical office said. It did not give a precise figure for the last three months of 2012, but said the economy shrank roughly half a percentage point compared to the third quarter.

The statistical office will release an official figure for the quarter next month.

Despite the quarterly decline, a compilation of annual economic data by the statistical office showed that the German economy is in fundamentally good shape. Exports rose 4.1 percent during the year, and 41.6 million people were working — a record high and the sixth annual increase in a row.

Unlike many other European countries including Britain, France and Italy, Germany has not been forced to adopt a growth-killing government austerity program. German federal, state and local governments recorded a budget surplus for the year equal to 0.1 percent of G.D.P, the statistical agency said. That is the first government surplus since 2007.

That contrasts with France, which will probably miss its deficit reduction target this year, according to data published Tuesday. The government aimed for a deficit of 4.5 percent of G.D.P., but data for November suggests the shortfall will be 4.8 percent, ING Bank estimated.

That means the French president, François Hollande, would have to find another €5 billion or $6.65 billion in revenue to meet the 2013 budget target, and could face another downgrade of France's credit rating.

"Today's figures underline how difficult the task will remain for François Hollande to keep the debt below 100 percent of G.D.P. during his mandate, and France's rank in the core of the euro zone," Julien Manceaux, an analyst at ING, wrote in a note.