WIESBADEN: The economic malaise continues to spread from US shores to much of Europe – including the continent's largest economy, Germany, where the Federal Statistics Office reports July's retail sales fell for the second month in succession.

Rising prices and a shrinking economy deterred household spending as sales declined 1.5% from June, itself 1.4% down on May. Averaged over the half-year, however, sales remained level.

For the first time in almost four years, the nation's economy shrank in the second quarter, damping consumer confidence.

"Consumer spending will likely remain weak over the coming quarters,'' predicts Commerzbank economist Ralph Solveen: "There won't be any renewed boost for the German economy in 2009."

However, there is a silver lining. Unemployment fell beyond economists' expectations in August, propelling the jobless figures to their lowest level in sixteen years – a trend that could boost consumer spending in supermarkets and department stores.

Investor confidence in August also bettered forecasts thanks to the ongoing decline in the value of the euro and a slight fall in oil prices.

And despite the overall trend, several sectors reported increased sales in July. Retail sales of clothing and shoes rose year-on-year by 4.1%; while sales of household supplies and furniture increased 1%  and spending on books and jewellery by 6%.

Data sourced from Bloomberg.com (Germany); additional content by WARC staff