Germany rebounds while France, Italy and Spain post declines

Industrial production in the 21-nation euro area fell 0.5% in August from July, the European Union’s statistics agency Eurostat said Thursday — the third consecutive monthly decline for the currency bloc. The August reading undershot expectations: economists polled by The Wall Street Journal had forecast a 0.2% increase. July’s reading was revised down to a 0.3% decline.

Production rebounded in Germany, the bloc’s largest economy, after a steep drop in July. Output fell back in France, Italy and Spain.

The August decline caps a tougher stretch for eurozone industry. Earlier in the year, production had appeared to weather the outbreak of war in Iran, but has now declined for three straight months. Concerns have centered on high energy costs and extreme weather putting the brakes on momentum.

“Industry may not be immune to higher energy prices and global uncertainty after all,” Bert Colijn, an economist at ING, said.

Manufacturing sentiment had held up through the period. Purchasing managers’ indexes for July through September showed manufacturing sentiment rising sequentially to its highest level since May 2022.

Rising energy costs continued to pressure factory margins and complicate the outlook for interest rates. In September, the rate of industrial input-cost and output-price inflation rose to its highest level since May.

The European Central Bank has raised interest rates twice in response to inflationary pressures generated by the conflict in the Middle East. Though policymakers have noted little sign of broader price effects stemming from the energy shock, they have warned that headline inflation could remain above the ECB’s 2% target for an extended period, raising the risk of further rate increases.

Industrial resilience helped underpin the wider eurozone economy in the second quarter, when growth outpaced the United States on an annualized basis. On Tuesday, the International Monetary Fund upgraded its 2026 GDP forecast for the region to 1.1%, from 0.9%.

Waning momentum in the industrial sector threatens to derail a nascent recovery in the eurozone economy.

“For the months ahead, we expect that continued high energy prices will weigh more on production, especially with natural gas prices now much higher than in the spring,” Colijn said.

The article was reported by Don Nico Forbes, a reporter for Dow Jones Newswires and The Wall Street Journal covering European economics.