German industrial production unexpectedly declined in May, raising concerns about a prolonged downturn in the country’s economy. According to data from the federal statistics agency Destatis, output fell by 0.2% compared to the previous month. This decline was primarily driven by a 13% drop in pharmaceutical production, which offset the increased production of vehicles.
Carsten Brzeski, the chief economist at ING, expressed his worries about the latest data, stating that “German industry is still stuck in stagnation.” He attributed this stagnation to a combination of factors such as a poor economic outlook, a lack of orders, and the need to build up inventories further. Other structural factors, including the conflict in Ukraine and the transition to green energy, also contributed to this situation. Brzeski further emphasized that Germany’s international competitiveness has already deteriorated in recent years and is likely to worsen further.
To avoid an extension of the recession, Brzeski noted that German manufacturing needs a surge in activity in June. The decline in May was particularly affected by a 7% decrease in the energy sector. However, the latest report suggests that Germany’s manufacturing slump may persist.
Brzeski pointed out that the data for the first two months of the second quarter does not eliminate the risk of a further contraction in the German economy. He mentioned that this decline signifies the first time since 2008 that the German economy has contracted for more than two consecutive quarters.
In the first quarter of 2023, Germany’s GDP fell by 0.3% following a 0.5% contraction in the previous quarter. While the Bundesbank initially predicted an end to the recession in Germany with a return to growth by the end of the year, economists warn of a possible further decline.
LBBW bank analyst Jens-Oliver Niklasch stated that it is more likely that Germany will experience a renewed decline in economic output in the second quarter. This suggests a continuation of the economic challenges faced by the country.
It is important to note that Germany’s economic performance significantly impacts the overall stability of the European Union due to its position as the region’s top economy. The country’s economic struggle could have broader implications for the EU as it tries to recover from the ongoing economic impacts caused by the COVID-19 pandemic.
Overall, the unexpected decline in German industrial production in May raises concerns about a prolonged downturn in the country’s economy. Without a significant surge in activity in the coming months, Germany may continue to face economic challenges and potential further decline in output. As the situation unfolds, economists closely monitor Germany’s economic performance and its implications for the broader European economy.
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