German Manufacturing Recovery Continues as Orders Climb for Third Straight Month — 2nd Update

By Ed Frankl

Manufacturing orders in Germany climbed again in July, another signal of the country's tentative industrial recovery that is defying the impact of surging energy prices as the conflict in the Middle East persists.

Factory orders in the eurozone's largest economy rose 2.5% on month, following an upwardly revised 3.7% rise in June, data agency Destatis said Friday. A consensus of economists polled last week by The Wall Street Journal had expected a small fall of 0.1%.

That marked a third consecutive monthly increase, continuing a decent run of industrial data even as the war in Iran sent oil-and-gas prices higher. Orders were 13.1% higher than the same month of last year. Industrial-production data for July is due on Monday, having also risen for the prior three straight months.

Almost all of July's rise in orders was due to larger orders of transport equipment, a grouping of goods that includes ships, trains and aircraft, Destatis said.

Excluding larger orders worth more than 50 million euros, or $58.1 million, orders declined slightly.

However, despite the mixed results, the already high order backlogs in a number of different sectors will likely contribute to a further firming up of the manufacturing sector, Deutsche Bank economist Marc Schattenberg said.

Stockpiling could still be propelling the overall upturn as supply constraints continued to exert an impact with the closure of the Strait of Hormuz.

Much of the increase in July was driven by a 4.3% jump in intermediate goods orders--those used to make other products like chemicals or semiconductors. Since consumer products orders declined 4.8%, it suggests those intermediate goods aren't being immediately turned into final products.

That could mean some of the industrial upturn that has helped the German economy might reverse in the second half of the year as stockpiling subsides.

But looking ahead, there appears to be no immediate setback. Production activity growth was the strongest in August since January 2022, driven by a jump in orders, according to purchasing managers' surveys published this week.

Despite energy prices continuing to inch higher as Middle East tensions escalate, and heatwaves stymieing flow of goods through the River Rhine, business expectations among manufacturers are now the strongest since February, before the first U.S.-Israeli strikes on Iran, the survey showed.

Headwinds could emerge from the country's traditionally key car industry, where orders in July sank back 12.5% on month. Symbolizing the shifts taking place in the sector, the board of auto giant Volkswagen on Thursday approved 50,000 more job cuts and a halving of its model portfolio as it pivots its strategy amid Chinese competition.

The European Central Bank is expected to raise its key interest rate next week, which could squeeze financing conditions for some manufacturers.

However, the manufacturing sector is expected to contribute more to Germany's economic growth than at the start of 2026. The Ifo Institute, a German economics think tank, on Thursday raised its expectations for growth this year, noting that orders have steadily improved and export expectations have recently climbed significantly.

Domestic demand climbed in July, a factor that is set to continue as hundreds of billions of euros in fiscal stimulus from the German government continue to flow to defense and infrastructure projects.

Write to Ed Frankl at edward.frankl@wsj.com

(END) Dow Jones Newswires

September 04, 2026 04:14 ET (08:14 GMT)