German industrial output likely rose slightly in May but export growth probably stalled, narrowing the trade surplus and adding to signs that the economy weakened sharply in the second quarter, Reuters polls showed.

The mid-range forecast of 50 economists polled was for industrial output to rise by 0.4% on the month in May after a decline of 0.8% in April.

Data showed manufacturing orders fell by 0.9% on the month in May—the sixth drop in a row—as domestic demand fell sharply, heightening concerns that Europe’s largest economy may have contracted in the second quarter.

The weak orders figures chimed with other recent economic indicators that have pointed to a slowdown in the German economy after it grew 1.5% on the quarter in the first three months of 2008, its strongest expansion since 1996.

The mid-range forecast in another Reuters poll of economists was for a narrowing in Germany’s trade surplus in May to 16.5 billion euros ($25.90 billion) from 17.7 billion in April.

The poll pointed to no change in exports on the month and a 1.4% rise in imports.

Germany has been the world’s largest exporter of goods since 2003 and sold almost one trillion euros worth last year. For years, foreign trade has been a key engine of growth, but a global slowdown now threatens to stall that driver.

Weaker economic conditions have weighed on German business sentiment, which deteriorated in June to its lowest level since December 2005 under the burden of the high oil price.

Germany’s chemicals sector said it expects stiffer headwinds in the second half but nudged up its 2008 revenue forecast, thanks to companies’ ability to pass on higher costs to customers.

“We expect to feel the impact of extremely high commodity and oil prices, the strong euro and the US economic downturn more strongly in the months ahead than we have so far,” Ulrich Lehner, head of the VCI industry association, told reporters. (Reuters)