Analysts had anticipated a smaller decline of only 0.5%, making this downturn more severe than expected.

This decline was primarily driven by significant reductions in the machinery sector, which fell by 5.3%, pharmaceuticals by 11.0%, and the food industry by 6.3%.

In June 2025, the manufacturing sector experienced an unexpected production drop of 1.9%, marking the lowest level since May 2020.

Adding to the concerns, industrial orders decreased by 1.0% in June, following a 0.8% drop in May, indicating potential challenges for future business activity.

A recent Bundesbank report highlighted pressures on the German economy due to high US tariffs, with particularly disappointing order intake in the automotive sector.

Industry leaders, including Helena Melnikov from the German chambers of commerce, have warned that these tariffs create significant challenges for German companies, which previously faced lower tariffs.

As of August 7, a new 15% US tariff on EU exports has intensified pressure on German exporters, contributing to a 2.1% decline in exports to the US in June.

The Ministry of Economic Affairs suggested that the weak industrial production reflects a counter-movement to earlier boosts in economic activity that were driven by anticipation of tariff increases.

Despite some improvements in business morale and upward revisions for growth forecasts in 2025 and 2026, actual business activity data remains disappointing.

Experts caution that the rise in business morale may be unwarranted, as it does not align with the current economic data.

Chancellor Friedrich Merz is focused on revitalizing Germany's economy, which has been struggling due to high energy costs and competition from China.

Analysts, including Carsten Brzeski from ING bank, have indicated that the dire production data may lead to downward revisions of the economy's slight contraction in the second quarter.