Retail sales in Germany fell more than twice what economists expected in June as evidence builds that Europe’s largest economy not only contracted in the second quarter, but may now be actually entering recession.

According to provisional results of the Federal Statistical Office (Destatis), turnover in retail trade in Germany in June 2008 was in nominal terms 1.2% and in real terms 3.9% smaller than that in the corresponding month of the previous year. The number of days open for sale was 25 in June 2008 and 26 in June 2007. When adjusted for calendar and seasonal variations, the June turnover was in nominal terms 1.4% and in real terms also 1.4% smaller than that of the preceding month.

Consumer confidence dropped to its lowest in more than five years and German unemployment fell at a weaker pace in July, reports showed this week. Business confidence fell the most since the 9/11 terror attacks last month, manufacturing orders unexpectedly declined for the sixth time in succession and industrial production had its biggest decrease in 9 years. Indeed if we look at the (seasonally adjusted) retail sales index, sales in June were below anything we have seen in a long time, certainly in years.

All this is certainly starting to complicate things significantly for the the European Central Bank following the increase in its benchmark interest rate last month to 4.25 percent amid the fastest inflation in 16 years. The ECB governing council meets again on Aug. 7 but there is a virtual unanimity among economists that they will leave interest rates unchanged.

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