The German economy shrank “considerably” during the second quarter according to the latest Finance Ministry figures, but in its monthly report for July it said the slowdown signals a “weakening, but not a disruption” of growth.

The report said foreign trade has been slowing and predicted exports will fall in the rest of the year but will not “collapse.”

The ministry based its pessimistic forecast on a “strong” drop in industrial production for the third month running in May and what it calls the “particularly complex challenges” of current global economic conditions.

However the Berlin government has not changed its GDP growth forecasts, sticking with a prediction of 1.7% for this year and 1.2% for 2009.

The problems of the second quarter contrast particularly with the first three months when good weather helped Europe’s largest economy grow at its fastest pace in twelve years.

It is not likely there will be much of a boost from the summer sales which have just started in Germany. Retailers have reported lower sales figures for spring and they said that although sale prices are enticing people into the shows they do not expect big spending because of recent increases in the price of energy, food and other necessities.

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