Karl-Theodor zu Guttenberg to take position after Michael Glos unexpectedly resigns.
Glos had been criticised for keeping too low a profile during the global economic crisis, and he was reportedly unhappy with the support he received from Merkel.
The new economy minister, who has become the youngest person to hold the role in Germany's post-war history, said he was ready to take on the position.
"We are in one of the greatest crises of the past years, a global crisis," Guttenberg said, adding that he aimed to bring new strength and resolve to tackling the downturn.
Horst Seehofer, leader of the CSU, said Guttenberg had a sound economic background.
Germany's economy is predicted to shrink by 2.5 per cent in 2009, according to the International Monetary Fund.
Unemployment is also on the rise, with economists warning 10 per cent of the workforce could be unemployed by September 27, when national elections are due to be held.