German industry defies higher energy prices and low water levels – for now

German industrial production is showing a gradual rebound, while the September improvement remains too dependent on a post-holiday bounce to signal a lasting recovery.

• Industrial production rose 0.7% month-on-month in September after increasing 2.0% in August, leaving output 0.4% above its level a year earlier.
• Automotive and construction activity surged in September, although both sectors face structural pressure from Chinese competition and higher interest rates.
• Supply-chain disruptions linked to the war in the Middle East and low summer water levels have so far caused less damage than feared.
• Industrial production fell in the third quarter compared with the second quarter, showing that the momentum recorded in the second quarter has faded.
• High energy prices and higher interest rates remain the main downside risks, while stronger new orders and slightly lower inventories point to moderate near-term growth.

Takeaway: German industry has resisted severe headwinds, but the data support a gradual rebound rather than a substantial recovery, with the September increase likely reflecting a post-holiday effect.