Gerhard Schroeder wants to kick-start the economy

He is keen to stimulate the economy - and especially to boost employment - ahead of next year's elections.

The finance ministry said it might revise its forecast after official quarterly figures come out next week.

But it is unlikely that full-year figures will slump especially sharply.

Growth prospects could be helped by tax cuts that went into effect at the beginning of the year.

Although unemployment rose in July for the seventh straight month, private consumption and household incomes improved in the second quarter, the bank said.

Rate-cut calls

The figures will only strengthen the consensus that the European Central Bank (ECB) will cut interest rates when it meets on 30 August.

The ECB has so far held firm on interest rates, leaving its key rate at 4.5% while other central banks have cut theirs.

The ECB argues that its job is to manage inflation, not to stimulate growth.

But recent indications that inflation is falling, not only in Germany, but in Spain and France too, make the case in favour of a rate-cut unanswerable, analysts say.

The recent strength of the euro against the dollar and sterling has also bolstered rate-cut proponents.