As supply disruptions in the Gulf region affected Asian competitors, some chemical companies even gained an advantage from the situation.

German industrial production unexpectedly rebounded sharply in August, as manufacturers continued to navigate a volatile environment shaped by fluctuating energy prices.

The country's statistics agency said on Wednesday that industrial output rose 2.0% month-on-month in August, reversing a 1.2% decline in July. This was the largest increase since March 2025. Economists surveyed had previously expected a gain of just 0.5%.

Since April, industrial production in Europe's largest economy has generally been recovering, as businesses built up inventories amid concerns about the Middle East war. Some German producers also gained an edge because supplies of raw materials from the Gulf region to Asian chemical companies were disrupted.

Overall output was up 2.3% compared with August 2025. The increase was mainly driven by a substantial rise in construction output, while output in the machinery and equipment manufacturing sector also increased. However, car production fell month-on-month, which Germany's Federal Statistical Office Destatis said was partly due to factory holidays.

The German economy achieved solid growth in the first half of this year, mainly driven by unexpectedly strong demand for its goods exports. The government's fiscal stimulus plan also continued to feed through to the economy, with hundreds of millions of euros allocated to defense and infrastructure investment.

Nevertheless, data released on Tuesday showed that German factory orders fell sharply in August. This indicator reflects demand that will eventually translate into production, and the decline was mainly dragged down by a sharp drop in large orders such as aircraft and military vehicles. Such orders are each worth more than 50 million euros (about 56 million US dollars) and had previously continued to grow as the government increased contracts for defense equipment procurement.

Commerzbank economist Ralph Solveen said in a note to clients that, unlike the orders data, the industrial production figures at least offered some hope that manufacturing activity did not contract in the third quarter and that the German economy may have achieved slight growth.

However, the impact of rising energy prices has already become apparent in the more energy-intensive sectors of the industrial sector. Destatis said output in these sectors fell 0.5%.

The European Central Bank raised interest rates last month for the second time this year, judging that the surge in oil and gas prices was too large to ignore. On Wednesday, Brent crude oil prices hovered above $100 per barrel.

Still, German business confidence rose in September to its highest level in more than three years, suggesting that companies appear to be playing down the economic turmoil triggered by the war.

Solveen added that recent positive confidence indicators offered hope for an upward trend in output, although the recovery may remain modest given the structural problems facing the German economy and US tariffs.

Compared with businesses, households are not feeling as optimistic. Last month, German consumer confidence fell to a five-month low.

Manufacturing is still facing a constantly changing economic environment. Auto giant Volkswagen has said it will cut tens of thousands of jobs as part of a key strategic review.