'We must expect that next will be a year of bad news, at least in the first months,' Dr Merkel was quoted as saying in an interview to be published in the Welt am Sonntag newspaper on Sunday.

The conservative leader said it was harder than before to predict the progress of the international and German economic situations.

'We have stabilised the financial markets thanks to a series of measures for the banks, but confidence still has to be found again and the interbanking market must become functional again,' in Germany, Dr Merkel said.

The government last month set up a special fund offering up to 400 billion euros (S$765 billion) in guarantees to get the interbank lending market functioning again, and up to 80 billion euros in direct cash infusions to bolster bank balance sheets.

The cabinet then approved a 23-billion-euro stimulus package on November 5 to help Europe's biggest economy and the world's top exporter avoid the worst effects of a sharp global slowdown before a hoped-for recovery in 2010.

The plan, which has to be submitted to parliament, seeks to protect jobs and put the economy 'back on its feet in 2010,' Dr Merkel said.

In her weekly Internet video message, the German leader warned that 'it will not be easy because this international financial crisis has repercussions on the economy but also on jobs in Germany'. -- AFP