By Ed Frankl
German manufacturing orders snapped back to mild growth in February, ahead of the energy-price shock of the war in Iran.
Factory orders climbed 0.9% on month, recovering a little from the 11.1% slump in the first month of the year, Germany's statistics agency Destatis said Wednesday. January's decline had been driven by a fall in large-scale orders--those valued at more than 50 million euros, or $58 million--which continued to be weak in February. A consensus of economists polled by The Wall Street Journal expected 1.0% overall growth in orders.
The decline in January came after orders surged toward the end of 2025, with on-month growth peaking at 6.4% in December, the fastest rate since 2024. Orders were almost 10% higher in the final quarter of last year than in the third, as the economy grew in 2025 for the first time since 2022. That came as a fiscal stimulus of more than $1 trillion pledged last year by Germany's government for defense and infrastructure investments started to seep through into industrial orders.
The car industry was the main driver of increased orders in February, alongside textiles and metals. Transport equipment, including aircraft, ships and trains, offset some of that growth.
Germany's large industrial base had traditionally been the driver of the country's economic growth. However, the sector has been mired in a recession since the late 2010s, as the country's exports faltered. Manufacturing was hit by the challenges of increased competition from China, a difficult transition to electric vehicles in its car industry, and soaring energy prices after Russia's full-scale Ukraine invasion.
The closure of the Strait of Hormuz amid the war in Iran has raised oil and gas prices again. The world's largest chemicals producer by revenue, Ludwigshafen-based BASF, as well as German firms Lanxess and Wacker Chemie, have said they are raising prices in response to higher raw-material costs.
Rising inflation more generally could prompt the European Central Bank to hike borrowing costs, adding further pressure on customers' willingness to place orders. Inflation in Germany jumped to 2.8% in March, from 2.0% in February, according to EU-harmonized data.
The bank might have to raise its key rate multiple times this year if the energy shock proves long-lasting, Belgium's central bank said this week.
"The way I feel comfortable putting it is, if this is not done by June, I think we're going to have to hike, but I don't want to exclude a hike in April," Pierre Wunsch told The Wall Street Journal's What's News podcast.
Investors anticipate nearly three ECB rate rises this year, though they pared expectations of a quarter-point hike as soon as its next meeting on April 30 after news of a two-week ceasefire on Monday.
The data suggests there is little hope for the time being that industry will significantly ramp up production in the short term and thereby boost the growth of the German economy, Commerzbank senior economist Ralph Solveen said in a note.
"This is all the more true given that the war in Iran has caused additional uncertainty, which is likely to slow investment - at least temporarily - especially since energy prices are expected to remain higher than before the war began," he said.
Write to Ed Frankl at edward.frankl@wsj.com
(END) Dow Jones Newswires
04-08-26 0314ET
