By Ed Frankl


German industrial production retreated in March, as the start of the conflict in the Middle East sent energy prices climbing, a setback for any recovery for manufacturing this year.

Germany's industrial sector had been expected to rebound in 2026, after a downturn that stretches back into the last decade. Pandemic-era supply issues were exacerbated by the pivot from cheap Russian gas, increased competition from China for German goods, and an expensive green-energy transition.

But the country's government last year pledged to unlock more than $1 trillion for defense and infrastructure--investments that it hoped would revitalize Germany's once-dominant manufacturing sector.

Rising oil-and-gas prices stemming from the war in Iran have darkened the outlook, and are especially damaging to a key energy importer like Germany.

Output fell 0.7% in March, driven by a slump in energy production, and accelerating a 0.5% decline in February, Germany's statistics agency Destatis said Friday. A consensus of economists polled by The Wall Street Journal expected a 0.5% rise in March. On-year, production was down 2.8%, the data showed.

As a result of the war, German industry faces stagnation at best this year, the country's BDI industrial association said last month, with the conflict creating additional uncertainty and strain for companies.

Sales of cars within Germany slowed significantly in April, the KBA motor authority said Thursday. Meanwhile, Volkswagen's head of procurement Karsten Schnake said in an interview with German trade publication Automobilwoche on Thursday that the automaker might have to raise prices should the war drag on beyond the middle of the year.

However, factory orders--which feed into production data with a lag--climbed in March, though some of that might have been front-running of stocks to get ahead of supply-chain disruption prompted by the closure of the Strait of Hormuz. The waterway is a key choke point for inputs like industrial gases and fertilizer.

The European Central bank is expected to raise interest rates between two and three times this year, according to LSEG, likely making borrowing more expensive for industrial firms.


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


(END) Dow Jones Newswires

05-08-26 0307ET