Industrial output dropped by 1.5% on the month - a far steeper drop than the 0.4% decrease that had been forecast, figures released by the Statistics Office showed.

"The continued plunge in production is scary," said Alexander Krueger from Bankhaus Lampe, adding that a recession in the manufacturing sector was likely to continue due to the recent escalation of the trade dispute between China and the United States.

"So growth forecasts for Germany are likely to be trimmed," Krueger added.

In the second quarter as a whole, industrial output fell by 1.8% on the quarter, driven by steep drops in metal production, machinery and car manufacturing, the economy ministry said.

"Industry remains in an economic downturn," the ministry said.

The figures came after German industrial orders on Tuesday  exceeded expectations in June, but the economy ministry cautioned that this sector of Europe's biggest economy had not yet reached a turning point.

The German economy is widely expected to have at best stagnated in the second quarter, and sentiment indicators suggest it could shrink in the third as exporters are hit by trade disputes, Brexit uncertainty and a slowing world economy.

The German government expects the economy to grow by a meagre 0.5% this year and rebound with a 1.5% expansion in 2020.

May's production reading was revised down to an increase of 0.1% from a previously reported 0.3% rise.