By Ed Frankl


German industrial production declined unexpectedly in February, with the energy-price shock from the conflict in the Middle East expected to hamper output further.

Production fell 0.3% on month in February, after an upwardly revised flat reading for January, Germany's statistics agency Destatis said Thursday. A consensus of economists polled last week by The Wall Street Journal instead expected a 0.5% increase in February.

The decline was driven by a fall in output in the construction industry, as well as in electronic and optical products and in the pharmaceutical sector.

By contrast, car production grew after a steep decline in the first month of this year, Destatis said.

The data shows that no matter how sustainable this week's announced cease-fire will prove to be, the war will leave clear marks on the German economy over the next few months, ING's global head of macro Carsten Brzeski said.

"February's macro data shows that even without the war in the Middle East, the German economy was unfortunately on track for yet another quarter of contraction," he said in a note to clients.

Germany's economy had grown last year for the first time since 2022, as government stimulus of more than $1 trillion to be spent on defense and infrastructure started to feed through. Factory orders in fact grew in February, a Destatis data release said Wednesday. The manufacturing purchasing managers index--a closely watched survey of firms--rose slightly in March.

But soaring oil-and-gas prices since the first U.S.-Israeli strikes on Iran mean inflation will put pressure on industrial companies ahead. Some of Germany's largest chemical firms, including BASF, Lanxess and Wacker Chemie have said in recent weeks they are raising prices in reaction to higher raw-material costs.

Investors now expect at least two interest-rate hikes from the European Central Bank this year, with some anticipating the first as soon as the next meeting on April 30.

"Prospects for German industry have clearly deteriorated," said Andrew Kenningham, chief Europe economist at Capital Economics, in a note.

However, the industrial sector shouldn't suffer anything like the declines of the last energy crisis in 2022, Kenningham said, when Russia's full-scale invasion of Ukraine prompted record-high inflation and a ramp-up in ECB interest rates.


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


(END) Dow Jones Newswires

04-09-26 0339ET