Germany is facing a grim economic outlook as the debt crisis pushes the eurozone closer to recession.

Data released Wednesday showing a bigger-than-forecast contraction in exports and a slump in industrial production have added to concerns that Europe's biggest economy is facing a steep slowdown in the coming months.

“The figures available so far suggest that the German economy grew in the second quarter,” said Commerzbank economist Ulrike Rondorf.

“However, there are increasing signs that the nation's gross domestic product will shrink in the third quarter,” she said.

The 1.5-per-cent fall in monthly exports in June and the 0.9-per-cent decline in output comes in the wake of a slew of grim data that have painted a downbeat picture of the nation's economy as it enters the last six months of the year.

The release of the figures came amid optimism in financial markets that the European Central Bank will launch a new action plan to help resolve the three-year-old debt crisis.

But the dispiriting economic numbers emerging from the eurozone's powerhouse economy also underlines the battle facing a large part of the currency bloc as it attempts to pay down debt at a time of faltering economic growth.

In particular, this is a key issue for Spain and Italy if they are to avoid seeking European aid to help meet their financial commitments.

“Needless to say, such a weak economic environment will make further fiscal progress in the indebted peripheral economies very difficult indeed,” said Jonathan Loynes, the chief European economist of the Capital Economics research group.

On Tuesday, the Economics Ministry said German factory orders fell by a more-than-forecast 1.7 per cent in June after demand from the 17-member eurozone dropped by 4.9 per cent.

German business confidence tumbled to a 28-month low in July, the Munich-based Ifo institute said, with the nation's second quarter corporate reporting season dominated by warnings by companies about their prospects for the rest of the year.

The number of unemployed in Germany rose for the fourth consecutive month in July, as the nation's jobless queues swelled by another 7,000, the labour office said. This, however, left the unemployment rate unchanged at 6.8 per cent - its lowest level in two decades.

Analysts had hoped that a pickup in domestic demand in Germany might help to offset the threat posed to the nation's exports by slowing global economic growth and the downturn now gripping the nation's key trading partners in the eurozone.

But figures released by the statistics office last month showed monthly retail sales in Germany falling for the third consecutive month in June.

For the moment, higher pay settlements are helping to shore up the mood among the nation's consumers, GfK research group said in its latest monthly survey of German households.

The GfK institute, however, warned: “The ongoing banking and debt crisis in Europe is causing the economic optimism of Germans to fade.

“Consumers are increasingly fearful that the German economy will now also be drawn into the crisis.”

Underscoring the weak performance of the domestic German economy, Wednesday's trade figures showed June imports dropped by a higher-than-forecast 3 per cent in June.

Still, June exports grew by 7.4 per cent when compared with the same month last year - powered ahead by demand from outside the crisis-hit eurozone. Year-on-year imports were up 1.5 per cent.

“The export sector is holding up well despite the difficult global economic situation,” said Oliver Wieck, who heads up the foreign trade section of the Federation of German Industry.

He expects exports from Germany, the world's second biggest exporter after China, to grow by 3 per cent this year.

Exports to so-called third countries, which include the United States and leading emerging economies such as China and Brazil, jumped by 19.8 per cent. - Sapa-dpa