The German economy may have contracted in the second quarter of this year, the latest official figures for industrial output and trade statistics suggest.

Data released by the German Economics Ministry yesterday show that seasonally adjusted industrial production grew by 0.2 per cent in May compared to April. This follows a slight decline in the adjusted measure of Germany's monthly trade surplus.

In spite of weak consumer confidence and demand, the German economy has been characterised by a compensating strength in exports to boost economic growth in the first three months of this year. Export growth remained strong in May, but was outpaced by even stronger import growth.

According to analyst Thomas Amend of HSBC Trinkaus & Burkhardt, this weakening in net exports would feed an economic contraction "We believe that there will have been a slight contraction in gross domestic product (GDP) in the second quarter".

Signs for the domestic economy are mixed. Domestic orders for consumer goods have continued an eight month unbroken run of growth. But a composite economic indicator published in yesterday's Frankfurter Allgemeine Zeitung newspaper suggests that economic activity remains flat. The latest evidence on the economy comes as the country prepares for a September general election.

German chancellor Gerhard Schröder has repeatedly called on the European Central Bank to cut interest rates to help stimulate Germany's economy.

As the largest economy in the euro zone, developments in the German economy exert a strong influence on the aggregate statistics used by the ECB for the euro zone as a whole to inform interest rate decisions. But ECB president Jean Claude Trichet has held firm to the position that there is no evidence of the need for interest rate cuts at present.