On Friday German statistics agency Destatis released new data showing that industrial production in Germany fell unexpectedly in May. The data has set off fears there will be a prolonged economic downturn in the biggest economy in the European Union.

Industrial output fell 0.2% compared to the prior month, as healthier vehicle production was countered by a 13% fall in pharmaceuticals.

Carsten Brzeski, the chief economist at ING, warned that according to the data, “German industry is still stuck in stagnation.” He noted there was a “toxic combination” of a lack of orders, a poor outlook, and that inventories need to be built up further, amidst structural issues, like the war in Ukraine and its effects on energy supplies, and the ongoing transition toward green energy.

Brzeski said, “The country’s international competitiveness has already deteriorated in recent years and is likely to deteriorate further.”

He added that there will need to be an activity surge in manufacturing in Germany in June, to avoid seeing the recession prolonged, as the figures for May were particularly affected by a decline in the energy sector.

However according to the latest data, it appears the manufacturing slump in Germany may be persisting.

Brzeski pointed out, “Data for the first two months of the second quarter have not taken away the risk of a further contraction of the German economy.”

He noted this current data represents the first time since 2008 that the economy in Germany declined for more than two quarters in a row.

In the first quarter of 2023, Germany’s GDP fell by 0.3%, following a 0.5% contraction in the fourth quarter of 2022.

The Bundesbank had previously predicted that Germany’s recession would end soon, with the economy resuming its growth by the end of the year, however economists warn now there will likely be a further decline.

LBBW bank analyst Jens-Oliver Niklasch said, “We may just see stagnation in the second quarter, but much more likely a renewed decline in economic output.”