German Industrial Output Rebounds at Strongest Pace Since Early 2025 — 3rd Update

By Ed Frankl

Industrial production in Germany recovered more sharply than expected in August, as manufacturing firms continued to respond to the changeable environment caused by volatile energy prices.

Output rose 2.0% on month, from a 1.2% fall in July, Germany's statistics body said Wednesday. That marked the strongest rise since March 2025. Economists polled by The Wall Street Journal had predicted a 0.5% rise.

Production in the eurozone's largest economy has mostly picked up since April, as companies stockpiled inventory due to concerns over the war in the Middle East. Some German producers also gained an advantage due to disruptions to supplies of raw materials from the Gulf to chemical companies based in Asia. Overall production was up 2.3% compared with August 2025.

Growth was driven by an especially strong rise in construction output, with mechanical equipment manufacturing also increasing. However, car production was down on the month, although that was partly due to factory holidays, Destatis said.

Germany's economy expanded solidly in the first half of the year, driven by unexpectedly strong demand for its goods exports. The government's fiscal stimulus package, directing hundreds of millions of euros into defense and infrastructure investments, also continues to feed through into the economy.

The jump in construction could be linked to the build-out of artificial-intelligence data centers, though will probably also involve renewing Germany's public infrastructure, Sebastian Wanke, an economist at KfW Research, said.

Growth in mechanical engineering and digitization encompasses data-processing equipment and lasers, required for the manufacture of semiconductors, showing the global boom surrounding AI and data centers has nevertheless taken hold in Germany, he said.

"Against this backdrop, production is set to rise and, hopefully, the joy of growth will soon return to this country," Wanke added.

However, German factory orders, which track demand that feeds into production, plummeted in August, data published Tuesday showed, driven by a large decline in big-ticket orders such as planes and military vehicles. These orders--each worth more than 50 million euros, or around $56 million--had been growing recently due to increased government contracts for defense equipment.

Unlike the orders data, the production figures at least offer hope that activity in the manufacturing sector didn't decline in the third quarter and that the German economy grew slightly, Commerzbank economist Ralph Solveen said in a note to clients.

Still, the impact of the rise in energy prices is visible in the more energy-intensive branches of the industrial sector, where production declined 0.5%, Destatis said.

The European Central Bank raised its key interest rate for the second time this year last month, judging the surge in oil and gas prices to be too strong to ignore. Brent crude on Wednesday hovered above $100 a barrel.

However, business sentiment in Germany climbed in September to a more-than-three-year high, indicating that firms appear to be shrugging off the economic turbulence caused by the war.

The recent positive sentiment indicators offer hope that production will trend upward, even if that pickup is likely to be modest given structural problems facing the German economy, U.S. tariffs, and strong competition from China, Solveen added.

The manufacturing sector continues to confront a changeable economic picture, with the country's automotive industry struggling in particular. Carmaker Volkswagen has said it would cut tens of thousands of positions as part of a critical strategic review.

In contrast with business, households aren't feeling as bright, with sentiment last month among consumers falling to a five-month low.

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

(END) Dow Jones Newswires

October 07, 2026 06:19 ET (10:19 GMT)