German industry grows more than expected on auto sector

[BERLIN] German industrial production grew for a second month, another sign that Europe’s largest economy is exiting the drag from the Iran war.

Output increased 0.9 per cent from a month earlier in May, the statistics office said on Tuesday (Jul 7). That’s much higher than the 0.1 per cent median estimate of economists in a Bloomberg survey.

The main driver of the growth was the automotive industry, which saw production rise 3.6 per cent, while construction also expanded.

The data follow a release on Monday showing an increase in factory orders in May, probably reflecting Germany’s upgrade of its armed forces as orders for transport equipment including for the military surged.

“The prospects for a gradual recovery in the coming months have improved,” said Michael Herzum, an economist at Union Investment. “Geopolitical uncertainty surrounding the Iran conflict has eased, energy prices have stabilised, the global economy remains robust, and higher government spending on infrastructure and defence is likely to increasingly feed into the real economy.”

German gross domestic product advanced 0.3 per cent in the first quarter of 2026 and should be further boosted by large-scale public spending on infrastructure and defence. Higher energy prices following the outbreak of the Iran war have been weighing on consumers and businesses, however.

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German factory orders rebound as Iran-war effects fade

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Vowing to break Germany out of years of underperformance, Friedrich Merz’s coalition announced reforms last week that target the pension system, income tax and sick-leave rules. BLOOMBERG