German retail giant KarstadtQuelle has warned of recession fears on the High Street, and said that consumer demand may prove difficult to revive.

The warning by Europe's biggest department store group saw its shares slide by more than 5% in early trade in Frankfurt.

And it came at a politically sensitive time for Germany, which faces elections next month in which economic factors are likely to weigh heavily on voters' minds.

Edmund Stoiber, the leading challenger, has attempted to focus on Chancellor Gerhard Schroeder's economic record, and in a television debate on Sunday repeated claims of poor management.

However, Mr Schroeder saw his public approval rating rise last week over approval at his handling of Germany's floods.

Important period

KarstadtQuelle said that a widening in net losses to 131.2m euros ($127m) for the April to June period, compared with a 38.8m loss a year before, reflected poor consumer sentiment.

"This confirms the sector-wide trend of pronounced buying resistance resulting from the economic situation in Germany, which is regarded by consumers as recession," Karstadt said.

The retailer also blamed reduced sales on the debate that retailers had hiked prices during the adoption of euro notes and coins at the start of the year.

And it swallowed 93m euros from its half-owned unit Thomas Cook, which was hit by the travel downturn stemming from the 11 September terror attacks.

Karstadt said sales were set to increase in the second half of 2002, which, including the Christmas period, was the group's most crucial period.

But it warned that it could still fall victim to prolonged economic uncertainty during the period, which could also be hit by the affects of the recent floods.

"We cannot assume a substantial revival of consumer demand in the second half," Karstadt said.