But company shares shot up more than 14 percent in early trading as the performance was seen as less damaging than had been feared.
Volvo recorded a loss after taxes of 1.348 billion kronor in the final three months of 2008 against net profit in fourth quarter 2007 of 4.0 billion kronor.
Fourth quarter sales fell 9.0 percent to 76.95 billion kronor.
For the full year 2008 Volvo suffered a 33 percent plunge in net earnings to 10.01 billion kronor from sales that rose 6.0 percent to 303.66 billion kronor.
The company predicted a further erosion in the market in 2009.
Volvo CEO Leif Johansson refrained from making a forecast about the truck market for 2009, citing the difficult market conditions.
“In the prevailing market situation, it is difficult to make an assessment of the truck market trend for 2009,” he said in a statement.
“We do not expect a recovery in demand during the first half-year, but with agreed and already implemented actions progressively penetrating during the first six months, we are prepared to cope with the troubling situation.”
The statement said demand in North America and Japan in particular would remain sluggish in the first six months of the year.
Volvo delivered 251,150 vehicles last year, up 6.0 percent over 2007. But deliveries fell 22 percent in the fourth quarter.
During 2008 and 2009, a total of 16,255 permanent employees, part-time employees, and contract consultants will be given notice their jobs will be eliminated.
Nearly 7,700 of the positions to be cut are in Sweden.
Volvo shares were showing a gain of 14.33 percent at 39.90 kronor in early deals on the Stockholm exchange.
"The report was much better than feared," analyst Michael Andersson of Finnish bank Evli told AFP.
"We know now that the economic environment is weak. But in that environment the company is still strong.... Cash flow was positive... which was quite unexpected and which leaves it in a very strong financial position."