German Industrial Production Drops More Than Expected at End of 2025

Berlin — Germany’s factory output closed out 2025 on a weak note, with industrial production declining more sharply than analysts anticipated in December, highlighting lingering pressures on Europe’s largest economy even as exports and orders show some resilience.

According to data from the Federal Statistical Office (Destatis), industrial production fell by about 1.9% month‑on‑month in December, a steep reversal after three consecutive months of modest gains and significantly larger than the modest contraction economists had forecast. The drop erased much of the recent uptick in manufacturing activity and ended the year with production slightly lower year‑on‑year, signalling unresolved weakness in Germany’s industrial core.

Mixed Signals: Production Weak, Exports Strong

In contrast to the decline in production, Germany posted stronger‑than‑expected export figures for December, with shipments rising about 4% compared with November — boosted by higher exports to key markets like the United States and China. However, exports remained lower on a year‑on‑year basis, reflecting broader global demand challenges.

Economists describe this pattern as a classic “lag effect”: orders and external demand can rebound before actual factory output begins to climb, meaning businesses may be planning to increase production in early 2026, even if the year ended on a softer note.

Broader Industrial Struggles

The December decline solidified a fragile finish to 2025. Production declines were especially notable in capital goods and intermediate goods — sectors closely tied to global demand and investment — while consumer goods held up better on a relative basis. Total industrial output for 2025 ended slightly lower than 2024 in annual terms, underscoring persistent structural challenges.

Recent indicators paint a mixed economic picture for Germany’s manufacturing landscape:

• German engineering orders fell in December, weighed down by weaker foreign demand, though domestic demand remained more stable.
• Manufacturing activity showed tentative signs of stabilization in early 2026, with some improvement in purchasing managers’ indices even as output remained below expansion thresholds.

These dynamics suggest that a full industrial recovery remains uncertain and may depend on sustained export growth, easing energy and supply‑chain pressures, and stronger global demand for German manufactured goods.

Economic Implications

Germany’s industrial performance is critical not only for its own economy but also for the broader eurozone manufacturing cycle. Given the country’s deep integration into global supply chains and its role as a major exporter of machinery and vehicles, continued weakness in production could weigh on European growth prospects in early 2026.

Analysts caution that while order books and exports offer some optimism, converting those signals into robust factory activity will require stable external conditions and supportive domestic investment — conditions that have proven elusive amid shifting trade patterns and geopolitical uncertainty.