BERLIN, Aug 6 - A top German think tank painted a bleak picture of Europe's biggest economy on Wednesday, saying it shrank in the second quarter of this year and would be stagnant in July-September. The DIW economic research institute said gross domestic product (GDP) adjusted for seasonal and calendar effects fell 0.2 percent in April-June from the first quarter. "Initial calculations show economic activity continued to fall in the second quarter. There was no evidence of any upward trend," the DIW said in its weekly research note. The Federal Statistics Office will publish official preliminary second-quarter GDP data on August 14. Key sentiment indicators have improved recently and the closely-watched Ifo index, the most important leading indicator for Germany, has risen for the past three months in a row, usually seen as a signal that an upturn is on the way. However, Germany's economy, now in its third year of sluggish growth, is still hovering close to recession and economists have warned that hopes that the slump may be slowly coming to an end may yet turn out to be premature. The DIW was sceptical of an immediate upturn in the absence of factors to generate a turnaround. "What is worrying is that not only is domestic dynamism lacking, but also there is no impetus from abroad because of the rise in the euro and growing weakness in other euro zone countries," the DIW said. "Even though some sentiment indicators have improved in the meantime, the pace of economic growth is unlikely to accelerate any time soon," it said. "All in all the stagnation phase for the German economy will continue in the third quarter of this year." The country's six leading think-tanks have all revised down their 2003 growth forecasts -- two expect a contraction -- and even senior ministers in Chancellor Gerhard Schroeder's government have expressed doubts about the official forecast for 0.75 percent growth. Most economists, including European Central Bank chief economist Otmar Issing, expect a modest upturn in 2004. Ifo slightly raised its 2004 growth forecast for Germany to 1.7 percent last week, saying that tax cuts and health reforms should help end the stagnation period.