The German economy shrank for the first time in almost four years, data released Thursday showed, falling by 0.5 per cent in the second quarter, DPA reported. But the slump was less than expected, with economists having forecast that the German economy would shrink by 0.8 per cent in the second quarter. Releasing the data, however, Germany's statistics office revised down the first-quarter growth rate from a previously estimated 1.5 per cent to 1.3 per cent. Moreover, figures also published Thursday showed German inflation coming in at a 15-year high of 3.3 per cent in July as higher food and energy prices have added to the current economic uncertainty facing the world economy. The 0.5-per-cent slump in Germany's seasonally adjusted second- quarter growth rate came in the wake of a fall in construction, capital investment and dwindling consumer spending, the statistics office said. When adjusted for working days, the German economy grew by 1.7 per cent year on year in the three months to the end of June, with the new data helping to give fresh support to the euro which has suffered over the last week as concerns have set in about the outlook for the 15-member eurozone economy. Despite the second-quarter slump, the German Government said it was retaining its 2008 forecast of a 1.7-per-cent growth rate, with surging inflation, the high euro as well as the finance market and credit crisis leading to the nation's economy slowing this year. Indeed, the second-quarter drop in the economy brings to an end a solid economic upswing in recent years, with the German economy chalking up a growth rate last year of 2.5 per cent Since then, the economic picture facing Germany has continued to darken. While recent monthly data have shown key German exports and production managing to hold up in the face of the global economic slowdown triggered by the credit crunch, other statistics have painted a less-encouraging picture of the prospects for the nation's economy. Once seen by many economists as helping Germany to offset fading world growth, private consumption in the country has taken a hit as energy prices have pushed inflation to record levels and economic worries have set in. German consumer confidence has slipped to a five-year low, a key survey released last month showed and retail sales fell sharply in June. At the same time, official data showed factory orders falling with the decline in unemployment slowing and a key survey showing business confidence in the country dropping to a three-year low.
