Industry Report May 2026

INDUSTRIAL POLICY DOSSIER

Industry Report

Industrial production and trade in the individual industries

▪ In view of the weak start to the year and uncertainties regarding the war in Iran, the BDI expects manufacturing output to stagnate this year. This forecast assumes that the fighting in Iran does not flare up again and that free passage is secured through the Strait of Hormuz, a critical chokepoint of global trade, in the near future.

▪ Another decrease in production is on the cards if the conflict further prolongs disruptions in shipping. This would cause tangible problems in supply chains and bring about the fifth consecutive downward year for manufacturing output.

▪ In the European Union, production is only set to increase by a slim 0.5 percent this year due to the war. While production in the pharmaceutical industry, vehicle production and other transport equipment is pointing up, the energy-intensive industries remain in recession.

▪ We expect the global trade in goods to increase by only between one and 1.5 percent in 2026. The goods exports of emerging countries should continue to expand while exports from advanced economies are likely to tread water.

▪ In 2026 overall, German exports could pick up slightly following three years of downturn. While trade with the United States and China is expected to fall further, EU trade should prop up performance overall

Global industrial production

In 2025, global industrial production expanded 3.2 percent according to figures from the Netherlands Bureau for Economic Policy Analysis (CPB). The rise in production was considerably higher than the average increase over the last ten years (+2.5%). After robust growth in the first quarter 2025, momentum slowed down slightly but remained upward throughout the year.

Among emerging countries, industrial production increased 4.5 percent in 2025 which is slightly more than the average growth seen here over the last ten years (+3.9%). After rising 4.4 percent at the start of the year, industrial production stepped up somewhat and increased 4.6 percent in the two summer quarters. In the final quarter of the year, the pace of growth slowed down. In the advanced economies, industrial production registered its first year-on-year rise in nine quarters in the first quarter 2025. In the further course of the year, the quarterly growth rates declined continuously. In 2025 overall, industrial production was nonetheless higher than in the previous year following two years of downturn. At 1.7 percent, the increase was also steeper than the average increase over the last ten years (+1.2%).

At the start of the first quarter 2026, global industrial production rose by a good three percent compared to the previous quarter. Growth was significantly slower among advanced countries than among emerging countries at just over one percent. Among emerging countries, industrial output expanded more than four percent. The global purchasing managers’ index for manufacturing pointed up in the first two months of the year, reaching its highest level in three years in February 2026 at 51.8 index points. In March, the index dropped down to 51.3 points on account of the war in Iran. For the year overall, we expect global industrial production to rise by two percent which is considerably less than in the previous year.

index: two-month average, after calendar and seasonal adjustments, in percent, year on year

In the advanced economies, industrial production in 2025 was only slightly higher than in the last quarter before the outbreak of the war in Ukraine in February 2022. While output in 2025 in the euro area, the United Kingdom, and Japan remained below the level recorded in the fourth quarter 2021, industrial production in the United States, the advanced Asian economies (excluding Japan), and other advanced economies was higher than before the outbreak of the war. In the latter group of countries, industrial production rose by 1.2 percent in 2025 compared to the previous year, putting industrial production here a good four percent higher than before the outbreak of the war. Industries in the advanced Asian economies excluding Japan expanded their production by 8.7 percent over the same period, exceeding pre-war levels by 6.3 percent. Although production in the United Kingdom (+0.2%) and Japan (+0.1%) was higher in 2025 than in the previous year, it was still 3.5 percent (Japan) and 5.1 percent (United Kingdom) below pre-war levels.

At the start of the first quarter 2026, industrial production among advanced economies was 0.5 percent higher than in the previous quarter. Japan exhibited particularly high growth at the start of the year (+4.0%). Production also increased among the advanced Asian countries excluding Japan (+1.8%) and in the United States (+1.0%) but dropped in the United Kingdom (-0.3%) and the euro area (-1.7%). The purchasing managers’ index for advanced economies has been above the 50-point threshold above which the index indicates expansion since August 2025 and recently rose continuously over a period of three months. In February, it climbed to its highest level in over three years to 52.0 points before dropping down to 50.7 points in March.

If production continues to increase at the same rate as in the first quarter of the year, growth could amount to half a percent on account of the small positive carryover from last year.

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year

Sources: Macrobond, Netherlands Bureau for Economic Policy Analysis (CPB)

Emerging countries

In the emerging countries, industry continued to gather pace at the start of 2025. In the first quarter of last year, industrial production here was 4.4 percent higher than in the first quarter of the previous year. In both of the following two quarters, the pace of growth stepped up to 4.6 percent. Year on year, industrial production among emerging countries was 4.5 percent higher than in 2024.

Among the individual groups of countries, industrial value added rose the most in China, expanding 5.9 percent, followed by the region of Africa and the Middle East, where industrial production increased 3.2 percent year on year. In the other Asian emerging countries, the rise in industrial production at 2.8 percent was level to the previous year. The group of countries of Central and Eastern Europe increased their industrial output by 2.4 percent, only half as much as in the previous year. Industrial production in Latin America rose for the fifth year in a row but, at 1.1 percent, the rate of growth was below the global rate of expansion for the third successive year.

Emerging economies: Industrial production*, Purchasing Managers Index

Africa/Middle East

Latin America

Central and Eastern Europe

Asia (excluding China)

China

Purchasing Managers Index seasonally adjusted (left axis)

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year

Sources: Macrobond, Netherlands Bureau for Economic Policy Analysis (CPB)

At the start of the first quarter 2026, industrial production in the emerging countries was 4.8 percent higher than in the previous quarter. Growth was fueled above all by the steep increase in industrial activity among the Asian emerging countries (China: +5.4%; Asia excluding China: +5.5%). In the Africa and Middle East region, the rise in industrial production was slightly higher at 6.4 percent. While industrial production among Central and Eastern European countries increased more than the global average, expanding 3.4 percent, production dropped among African and Middle Eastern countries, falling 1.7 percent year on year

The purchasing managers’ index for manufacturing among emerging countries recently increased over a period of three months. In February, it reached its highest level in eleven months, rising to 52.0 points. In March, the index dropped substantially on account of the war, down to 50.7 points, but remained in expansionary territory. Due to the political uncertainties in the Middle East, we now expect

industrial production in the emerging countries to only increase by around three percent this year overall.

United States

US industry (industrial production excluding construction) started out 2025 with a 0.7 percent rise in production in the first quarter, which was the first increase after eight quarters of downturn. In the second quarter, the upward trend continued with a rise in production of 0.5 percent. In the second half of the year, production was 1.7 percent up year on year in both quarters. For the year overall, production expanded by 1.2 percent. Production therefore increased more than on average over the last ten years (+0.7%). Compared to 2019, the year before the outbreak of the Covid pandemic, production was 1.1 percent lower. Manufacturing output was also upward, but not quite as steep, rising 0.9 percent overall and was still 2.6 percent lower than before the pandemic.

Among the individual industries of the manufacturing sector, the producers of computers and data processing equipment recorded the largest rise in 2025, expanding production by 7.2 percent, followed by the pharmaceutical industry, which stepped up production by 6.1 percent. Chemicals, excluding pharmaceuticals, only increased by 1.1 percent. Following one year without growth, vehicle production turned up again, increasing output by 2.5 percent over the previous year. Machinery manufacturing increased production slightly more than the manufacturing sector on average (+1.0%). The electro industry curbed its output by 1.1 percent. The food industry recorded its third successive year of downward production, but the decrease was marginal (-0.1%).

United States: Industrial production*, Purchasing Managers Index

production (right axis) Purchasing Managers Index, seasonally adjusted (left axis)

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year

Sources: Macrobond, Netherlands Bureau for Economic Policy Analysis (CPB)

In the first two months of the first quarter 2026, manufacturing output increased by 0.8 percent compared to the previous quarter. According to US figures, the sectors which recorded above-average growth were primarily the electro industry (+3.1%), vehicle production (+1.9%), producers of computers

(+1.4%) and machinery manufacturing (+1.2%). The food industry was the only industry to go the other way, curbing production slightly at the start of the year. The purchasing managers’ index for manufacturing has remained above the 50-point mark continuously since August 2025, indicating expanding production. In March, the index climbed 0.8 percentage points up to 52.4 index points, signalising a further increase in production going forward. In view of the positive start to the year and the self-sufficient energy supply of the United States, we expect manufacturing output here to rise by one percent in 2026 overall.

China

China’s industry was unable to maintain the strong upward momentum seen in the second half of 2024 at the start of 2025. According to figures from the Netherlands Bureau for Economic Policy Analysis (CPB), industrial production increased by 1.7 percent in the first quarter (+6.3% year on year). In the second quarter, the pace of growth almost halved with production only increasing 0.8 percent compared to the previous quarter. In the next two quarters, industrial activity stepped up again, increasing by 1.1 percent and 1.3 percent respectively quarter on quarter and just under six percent year on year in the third quarter and five percent in the fourth quarter. In 2025 overall, industrial production expanded 5.9 percent.

China: Industrial production*, Purchasing Managers Index

production (right axis) Purchasing Managers Index, seasonally adjusted (left axis)

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year

Sources: Macrobond, Netherlands Bureau for Economic Policy Analysis (CPB)

According to official Chinese figures, value added increased across almost all industries in 2025. The annual growth rates in passenger car production averaged 12.4 percent. The chemical industry increased its output by an average of 7.9 percent. The producers of computers and electrical equipment recorded a considerably steeper rise in production (+10.3%). In machinery manufacturing, growth at 9.1 percent was substantially higher than among specialised machinery producers (+4.3%). The production of ships, rail vehicles and aircraft rose 12.9 percent, even more than the record performance seen in 2014 (+12.5%). The output of metal products increased 5.5 percent. Growth was significantly lower in pharmaceuticals (+2.7%), in the production of textiles (+2.7%) and in the

production of paper and cardboard (+3.0%). The production of shoes and clothing went the other way, falling 2.8%.

Depending on the data source, China’s industrial output was between two and five percent higher in the first quarter 2026, year on year. The purchasing managers’ index for manufacturing in China has been above the 50-point threshold indicating expansion since December 2025. In February, it climbed to 52.1 points, its highest level in three years. In March, the index fell 1.3 index points down to 50.8 also on account of the consequences of the Iran war. If production remains at the level recorded at the start of the year, production could grow by between four and five percent in the year overall on account of the positive carryover of more than one percent.

Japan

At the start of 2025, Japan’s industry (industrial production excluding construction) expanded production year on year for the first time in six quarters. The upward trend did not last, with production slightly lower year on year in the next three quarters. In 2025 overall, production only decreased 0.3 percent. In comparison, the manufacturing sector performed slightly better with an increase in output of 0.1 percent.

Among the individual industries of the manufacturing sector, vehicle production recorded the strongest year-on-year rise in production, with an increase of 1.2 percent. Japan’s machinery manufacturers saw production increase by a slight 0.4 percent following two years of downturn. Production was steeply downward in the electro industry (-6.1%). Production was slightly down in the chemical industry including pharmaceutical products, dropping 0.2 percent year on year. Chemicals excluding pharmaceuticals recorded a slightly worse performance (-0.9%). Metal producers and metalworkers reduced their output by 2.5 percent. Production was also down in the cement industry (-4.7%), in the paper industry (-2.0%) and in the food, beverages and tobacco industry (-0.6%).

Japan: Industrial production*, Purchasing Managers Index

production (right axis)

Managers Index, seasonally adjusted (left axis)

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year

Source: Macrobond

In the first two months of the current year, manufacturing output was three percent higher than in the fourth quarter 2025. This was primarily the result of the steep rise in output in machinery manufacturing and vehicle production. Production also increased in the metal and food industry at the start of 2026 but decreased in the electro industry and in chemicals excluding pharmaceuticals.

The purchasing managers’ index for manufacturing has increased continuously since November 2025. After reaching its highest level in three years it dropped slightly at last count. Standing at 51.6 index points, it is nonetheless still well above the threshold to expansion of 50 points. Even though Japan’s industry started out the year with a negative carryover of 0.5 percentage points, production would be up by 2.5 percent for the year overall if levels seen at the start of 2026 are maintained throughout the rest of the year.

South Korea

South Korea’s industrial production (excluding construction) grew by just under four percent in the first six months of 2025 compared to the same period in the previous year. At the start of the second half of the year, activity accelerated slightly before turning down markedly in the fourth quarter both compared to the previous quarter and year on year. Because of the weak performance at the end of the year, production in 2025 overall was only up on the previous year by 3.3 percent. The manufacturing sector recorded a similar trend, with an increase in output of 3.9 percent for the year overall.

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year

Source: Macrobond

Among the individual industries of the manufacturing sector, vehicle production recorded an increase of 1.6 percent after posting negative growth the previous year. The producers of pharmaceutical products continued their yearslong uptrend with an increase in output of 8.1 percent. Chemicals excluding pharmaceuticals, on the other hand, saw production drop by a slight 1.1 percent. While metalworking companies curbed activity by 0.5 percent in 2025 overall, the electro industry, as in 2024, again recorded a double-digit increase, this time of 10.7 percent. The food industry curbed production by a lean 0.3 percent. The food industry expanded production by 1.6 percent. South Korea’s machinery manufacturers recorded a sturdy uptrend, expanding output by 6.3 percent.

At the start of 2026, industrial activity has continued to grow. In the first two months of the first quarter, production was 1.9 percent higher than in the previous quarter (+0.8% year on year). While chemicals, the electro industry and machinery manufacturing all recorded above-average increases in production, output was down considerably in vehicle production and in pharmaceuticals. The purchasing managers’ index for manufacturing has been above the threshold to expansion of 50 points for the last four months. In March, it continued rising, climbing up to 52.6 index points, its highest level in the last three years. South Korea’s industry started out the year with a negative carryover of just under two percent. To draw level with last year, production would have to maintain the level seen in the first quarter for the rest of the year

United Kingdom

The United Kingdom’s industry managed to end its steep downward trend in 2025. In the first quarter 2025, industrial production (excluding construction) recorded a solid increase. After stagnating in the second quarter and increasing in the third quarter (+0.7%), industrial activity then gathered considerable pace at the end of the year. In 2025 overall, production thus increased slightly (+0.2%). The manufacturing sector, on the other hand, proved unable to continue its upward trend of the last two years, registering a slight drop in production of 0.2 percent.

United Kingdom: Industrial production*, Purchasing Managers Index

Industrial production (right axis) Purchasing Managers Index, seasonally adjusted (left axis)

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year

Source: Macrobond

Among the individual industries of the manufacturing sector, the steepest drops in production were registered by vehicle producers (-9.9%). Production was also clearly downward among the energyintensive industries metal (-8.6%) and chemicals (-6.4%). The downturn in production was less pronounced in the food industry (-0.3%), the paper industry (-1.4%) and in textiles and clothing (-2.2%). Going the other way, producers of pharmaceuticals (+9.9%), electronics (+6.8%) and machinery (+5.5%) all saw their production levels increase substantially. Output also expanded among producers of computers and optical equipment (+3.6%) and in other transport equipment (+3.8%).

At the start of the first quarter 2026, manufacturing output was upward both compared to the previous quarter and year on year. Looking at the individual industries, pharmaceuticals, the producers of electronics, computers and optical equipment and other transport equipment all recorded an increase in production of around four percent. Going the other way, output was down significantly in chemicals. Vehicle production and machinery manufacturing and paper and the metal industry also registered downward production at the start of the year.

The purchasing managers’ index for manufacturing has been above the threshold of 50 points indicating expanding production since November 2025. At 51.0 index points at last count, in March 2026, it was still above the 50-point mark. If production maintains the level seen at the start of the year throughout the rest of the year, manufacturing output would increase by 0.5 percent in 2026 overall

European Union

In the European Union, industrial production (excluding construction) in the first quarter 2025 was 1.5 percent higher than in the previous quarter. This was the largest quarterly rise registered in more than four years. For the first time in seven quarters, production was also up year on year, 1.1 percent higher than in the first quarter 2024. In the next three quarters, production remained upward but at a much slower rate. At the same time, production was well above the previous year throughout the whole period. In sum, industrial production in the EU rose by 1.5 percent in 2025 after two years of downturn. Manufacturing output fared slightly better still, with an increase of 1.6 percent in 2025 overall.

Among the individual industries of the manufacturing sector, pharmaceuticals recorded the strongest growth by far, expanding 15.2 percent in 2025. Other industries to register above-average growth were other transport equipment (+5.3%) and the electro industry (+2.4%). The electro industry turned back to growth, increasing 0.8 percent, after recording a steep downturn the previous year. The metal industry bottomed out (+0.2%) after a downtrend of three years. Textiles and clothing experienced the steepest drop, contracting 3.9 percent, followed by the energy-intensive chemical industry (-3.5%), whose output was 19.5 percent lower than before the outbreak of the war in Ukraine. The other energyintensive industries paper (-0.7%) and building materials (-0.3%) have recorded much less pronounced drops recently. Compared to 2021, however, production levels are still substantially lower (paper:8.5%; building materials: -14.9%). The output of other less energy-intensive industries was also down year on year. EU machinery manufacturers produced only slightly less than last year (-0.5%), while vehicle production was considerably lower (-2.2%).

At the start of 2026, industrial activity has lost substantial momentum and was down on the fourth quarter of 2025 and year on year. The steepest drops were recorded by the pharmaceutical industry and the metal industry. The output of the electro industry decreased by more than two percent, and vehicle production was downward by around one percent. Machinery manufacturers and the chemical industry produced just slightly less than in the previous quarter.

The purchasing managers’ index for manufacturing in the EU has remained below the threshold to expansion since September last year. In February, the index climbed up to 50.5 points indicating a slight pick-up. The upward trend continued in March 2026, with the index rising to 51.3 points, its highest level in three years. Although Europe’s industry started out 2026 with a small positive carryover of 0.2 percentage points, the prospects for the further course of the year are anything but rosy in view of the war in Iran. The higher energy prices are driving costs up and further worsening the

competitiveness of European industry. We therefore only expect the manufacturing output of the European Union to increase slightly this year, by around 0.5 percent.

European Union EU27: Industrial production*, Purchasing Managers Index

Industrial production (right axis) Purchasing Managers Index, seasonally adjusted (left axis)

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year

Source: Macrobond

Germany

Germany’s industry (industrial production excluding construction) started out 2025 with an increase in production of 0.8 percent compared to the previous quarter, ending a downward trend of two years. The upturn did not last long, with industrial activity dropping down over the summer quarters, decreasing 0.4 percent in the second quarter and 0.6 percent in the third quarter, quarter on quarter in both cases. In the fourth quarter, production gathered pace and expanded 1.2 percent over the previous quarter, bringing output levels higher year on year for the first time since summer 2023. Despite the strong performance in the fourth quarter, industrial production was 0.9 percent lower in 2025 than in the previous year. Manufacturing output fared slightly worse still, contracting 1.2 percent over the same period.

Among the individual industries of the manufacturing sector, the pharmaceutical industry saw the biggest gains by far in production, growing output 4.6 percent compared to 2024. Other industries that recorded expanding production were other transport equipment and the food industry, but growth here was small at 0.3 percent and 0.2 percent respectively. Output in the other industries continued downwards. The electro industry finished off the year with production just minimally below last year’s level. Vehicle production and building materials both saw production fall two percent. Germany’s machinery manufacturers curbed their output by 2.4 percent. Production dropped even more among energy-intensive industries, with chemicals reducing production by 3.3 percent year on year, the paper industry by 2.5 percent and the metal industry by 2.1 percent. The steepest drop in production was in textiles and clothing which decreased its output by 4.1 percent.

At the start of 2026, industry was still not showing any signs of economic recovery. In the first two months of the current year, manufacturing output was 1.2 percent down on the previous quarter.

Whether and on what scale the tide will turn largely depends on the intensity and duration of the war in Iran, the consequences of which are not yet reflected in production levels.

The purchasing managers’ index for manufacturing has risen continuously since the turn of the year 2025/2026. In February 2026, the index rose out of contractionary territory for the first time in 43 months. Despite the start of the war in Iran, the index continued upwards in March, climbing to 52.2 points, signalising further expansion. In view of the weak start to the year, the BDI expects manufacturing output to stagnate this year. This forecast is based on the assumption that the fighting in Iran does not flare up again and that free passage is secured through the Strait of Hormuz, a critical chokepoint of global trade. If shipping continues to be disrupted by the conflict for longer, this would cause tangible problems in supply chains and bring production levels down further. In this case, manufacturing output would fall for the fifth year in a row.

Germany: Industrial production*, Purchasing Managers Index

Industrial production (right axis) Purchasing Managers Index, seasonally adjusted (left axis) *Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year

Source: Macrobond

Germany’s industry in EU comparison

The steep increase in energy prices in 2022 has left a considerable mark on German industry. While manufacturing output in the European Union in 2025 was one percent higher than the annual average in 2021, German industry produced 6.5 percent less in the same period. German industry has not been the only one to be affected by the energy price shock. Italy and Hungary have seen production be scaled back to a similar extent, with levels 5.9 percent lower in both cases. The manufacturing output of Spain in 2025 was 2.7 percent higher than in 2021. In Austria, production was 2.4 percent higher in the same period and, in France, 3.5 percent higher. Swedish industry has been almost unscathed by the energy price shock, with production levels here almost nine percent higher than in 2021. Production levels have risen even more in Poland (+13.0%) and in Greece (+16.1%).

Production* in Manufacturing since2021, by country

Sources: Macrobond, own calculations

Looking at the individual industries, Germany is not doing well compared to the rest of Europe. While production decreases in the electro industry and in chemicals were on a similar scale to the European Union as a whole, production decreases in the metal industry, at 12.7 percent, the paper industry, at 18.9 percent, and in building materials were all much larger than the EU average. German machinery manufacturers have cut their activity by almost ten percent in the last four years, while the drop in the EU overall was much less pronounced at only 1.6 percent. Even industries in Germany that have seen production rise since 2021, are lagging behind. The pharmaceutical industry and other transport equipment have recorded production increases of 4.2 percent and 20.5 percent respectively between 2021 and 2025, but this is still well below the EU average gains of 53.5 percent for pharmaceuticals and 30 percent for other transport equipment. The only positive exception is German vehicle production, whose output expanded 6.5 percent which is slightly more than across the whole European Union (+5.4%)

Development of production by industry (year 2025 compared to year 2021, in percent)

Verarbeitendes Gewerbe

Manufacturing

Pharmaceuticals

Pharmazie

Other transport equipment production

sonstiger Fahrzeugbau

Motor vehicle production

Fahrzeugbau

Mashinery manufacturing

Electronic industry

Metal industry

Paper industry

Building industry

Chemical industry

Sources: Macrobond; own calculations

France

France’s industry (industrial production excluding construction) started off 2025 with an increase in production of 0.4 percent compared to the previous quarter. After stagnating in the second quarter, industry increased its output considerably at the start of the second half of the year also producing more year on year from that point onwards. Although activity then faltered in the fourth quarter, industrial production was still 0.6 percent up in 2025 overall. Manufacturing output was also 0.6 percent higher than in the previous year.

Among the individual industries of the manufacturing sector, the steepest increases in production were recorded by other transport equipment, which expanded 10.1 percent, and textiles, which rose 8.7 percent, followed by vehicle production, which was up 3.1 percent. The electro industry (+0.9%) and the pharmaceutical industry (+0.8%) recorded considerably lower increases in production. Going the other way, the steepest falls in production were in the energy-intensive industries of chemicals (-3.1%), paper (-1.7%) and metal (-1.1%). The downtrend in production was much less pronounced in the food industry (-0.8%) and among French machinery manufacturers (-1.0%).

At the start of the first quarter 2026, manufacturing output was 0.2 percent down on the previous quarter but one percent up year on year. Activity pointed up in almost all industries, with production only downward in vehicle production, the electro industry and in textiles.

In December 2025, the purchasing managers’ index for manufacturing returned to expansionary territory for the first time since August 2025. In January 2026, the index climbed to its highest level in 34 months before losing ground again. Standing at 50.0 points, it is only just above contractionary territory. France’s industry started out 2026 with a positive carryover of 0.4 percentage points. In view of the downward sentiment indicators and weak production figures at the start of the year, production is set to fall slightly this year overall (-0.5%).

Industrial production (right axis) Purchasing Managers Index, seasonally adjusted (left axis)

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year

Source: Macrobond

Italy

Italy’s industry (industrial production excluding construction) managed to end its downward trend in production at the start of 2025 for the first time in over two years. In the first quarter 2025, production increased 0.5 percent compared to the previous quarter. In the second quarter, production continued to expand (+0.4%). In the third quarter, Italy’s industrial production was 0.3 percent higher year on year, which was the first year-on-year rise in eleven quarters. At the end of the year, activity continued to increase. For 2025 overall, production was nonetheless a marginal 0.3 percent lower than in the previous year. Manufacturing output performed slightly worse, down on the previous year for the third consecutive time, this time by 0.9 percent.

Among the individual industries of the manufacturing sector, production contracted the most in vehicle production, at minus 10.9 percent, followed by textiles and clothing, where production decreased six percent. Among the energy-intensive industries, the chemical industry curbed its production by 3.2 percent and the paper industry by 0.1 percent. Going the other way, the pharmaceutical industry expanded its production by 4.5 percent, followed by other transport equipment, with an increase of 2.1 percent. Italy’s machinery manufacturers tread water, nudging production up by 0.3 percent, as did the metal industry (+0.4%). The electro industry was somewhat more buoyant thanks to the strong demand for computers and optical equipment, stepping up production by 1.3 percent. In the food industry, production was 1.7 percent higher than in the previous year.

The first available production data for 2026 do not yet show any signs of economic recovery. In the manufacturing sector, production at the start of the first quarter was 0.5 percent lower than in the final quarter of 2025. Production was also down year on year. Among the individual industries, trends were very mixed. While machinery manufacturing, vehicle production and other transport equipment all recorded expanding production, the metal industry and the electro industry curbed their production at

the start of the year. The pharmaceutical industry even started out the year with a double-digit drop in production.

In contrast to the production data, sentiment indicators were positive. The purchasing managers’ index for manufacturing was upward over three months most recently. In February, the index climbed to 50.6 points and was therefore in expansionary territory. In March, it continued to rise, climbing up to 51.3 index points, its highest level in the last three years. As Italy’s manufacturing sector has also started out the year with a positive carryover (0.1% points), we expect production to increase by 0.5 percent this year, which would represent the end of a three-year period of downward production.

Italy: Industrial production*, Purchasing Managers Index

Industrial production (right axis) Purchasing Managers Index, seasonally adjusted (left axis)

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year

Source: Macrobond

Spain

Spain’s industry (industrial production excluding construction) was able to continue the upward trend that had set in at the end of 2024 into the new year. Production in the first quarter 2025 was 0.3 percent higher than in the previous quarter. The upward trend continued and accelerated in the second quarter (+0.6%). At the start of the second half of the year, the upward trend registered a little dent with industrial production only increasing 0.1 percent in the third quarter before recording another pronounced increase in the fourth quarter (+0.7%). In 2925 overall, production increased 1.2 percent. Manufacturing output only increased by half as much, rising 0.6 percent.

Among the individual industries of the manufacturing sector, other transport equipment recorded the strongest increase by far, expanding production by 6.2 percent, followed by pharmaceuticals, which stepped up activity by 2.1 percent. In the metal and electro industry, production was 1.8 percent higher year on year in both cases. The output of the food industry (+1.6%) increased on a similar scale. In contrast to other European countries, chemicals excluding pharmaceuticals also expanded production year on year (+0.7%). Production decreased a clear 4.6 percent among Spain’s textile and clothing

producers. Vehicle producers also saw output drop on a similar scale (-4.5%). In comparison, the production declines recorded by machinery manufacturing (-0.6%) and the paper industry (-0.8%) were relatively moderate.

At the start of 2026, Spain’s industry experienced a slight setback. The latest figures show production dropping 2.8 percent at the start of the first quarter 2026 compared to the previous period following seasonal and calendar adjustment. Year on year, production was down 1.7 percent. The purchasing managers’ index for manufacturing signalises a further drop in momentum. In December and at the start of 2026, the index dropped below the threshold to expansion of 50 points for the first time since May 2025. After recovering briefly in February, the index fell down to 48.7 points, its lowest level in eleven months. As the manufacturing sector of Spain started out the year with a positive carryover of 0.6 percentage points, we still think Spain’s industry could well recover and see production rise slightly in 2026 overall.

Spain: Industrial production*, Purchasing Managers Index

Managers Index, seasonally adjusted (left axis)

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year

Source: Macrobond

Global trade

Global trade activity expanded again last year. According to figures from the Netherlands Bureau for Economic Policy Analysis (CPB), the global trade in goods increased 4.2 percent year on year in 2025 which is substantially more than on average over the last ten years (+1.9%). After rising 0.5 percent in the first quarter compared to the previous quarter, trade activity speeded up markedly, rising 1.1 percent in the second quarter and 1.0 percent in the third quarter. Momentum then flagged slightly in the fourth quarter (+0.7%). Overall, trade activity was 3.3 percent higher in 2025 than in the previous year.

Emerging countries exported 6.3 percent more goods in 2025 overall than in the previous year. The steepest increases were recorded by China, which expanded exports by 10.1 percent, and Latin America, which exported 6.5 percent more goods than one year ago.

Exports from the other Asian emerging countries (+6.1%) increased on a similar scale. After dropping more than four percent in 2024, exports from Africa and the Middle East turned back to growth, rising 2.7 percent. Exports from the Central and Eastern European emerging countries decreased slightly (-0.2%) following two years of strong growth.

Exports from advanced economies increased by 3.2 percent overall in 2025. In this group of countries, exports were by far the most buoyant from the advanced Asian countries excluding Japan, surging up 15.8 percent. In their slipstream, Japanese exports also recorded above-average growth (+4.6%). The United States recorded an increase in exports of 3.1 percent, displaying a similar momentum to advanced economies overall. Exports from the other advanced economies only increased slightly (+1.1%), as in the two previous years. Exports from the United Kingdom decreased for the third consecutive year (-2.9%), as did exports from the European Union, which were only slightly lower than in the previous year (-0.5%).

The latest figures show trade activity gathering strong momentum. In January 2026, global exports were three percent up on the previous month. Exports from advanced countries were two percent higher than in the previous month. Exports from emerging countries rose 4.4 percent in the same period. The BDI expects world trade to increase by between one and 1.5 percent in 2026 overall.

World: Exports according to region of origin

Index: two-month average, after calendar and seasonal adjustments, in percent, year on year

Source: Macrobond

Development of German exports

In the first quarter 2025, German goods exports increased 0.9 percent year on year. This was mainly due to the frontloading of exports to the United States (+2.5%) and rising exports to the European Union (+0.7%). In the second quarter, exports only increased by 0.5 percent. While exports to China had already been weak at the start of the year, exports to the United States also turned down in the second quarter, plunging 9.7 percent. These reductions were compensated by a strong increase in exports to the European Union (+3.1%).

These trends continued in the third quarter, with further drops in trade with China and the United States compensated not only by EU trade but also by rising exports to the United Kingdom. All in all, exports increased by 0.9 percent in the third quarter. In the last quarter of 2025, exports picked up further momentum, rising 2.2 percent. Exports to the EU increased 7.2 percent and exports to China as good as levelled out. Exports to the United States turned up again while exports to the United Kingdom turned down again. For 2025 overall, German exports increased 1.1 percent compared to the previous year.

Looking at the destination countries and regions, German exports to the European Union increased the most, climbing 4.2 percent. Exports to China pointed down steeply, with exports down by all of 9.6 percent year on year. Trade with the United States was similarly poor, with exports to the country falling 8.9 percent. Exports to the United Kingdom remained relatively steady (-0.6%), while exports to the rest of the world increased by a moderate one percent.

At the start of the first quarter 2026, exports were 1.5 percent up on the previous quarter, according to preliminary figures from the Deutsche Bundesbank. Compared to the first quarter 2025, goods exports were up by a slightly lower one percent. Exports to China (-17.6%) and to the United States (-14.6%) recorded double-digit decreases in both cases. Exports to the United Kingdom were just over two percent higher. Exports to other countries were a good five percent lower. Trade with the European Union remained on a stable upward path (+3.7%). In 2026, we expect exports to rise moderately. Trade with the EU should more than compensate for the weak trade with the United States and with China.

Germany: Exports according to region of destination

Index: two-month average, after calendar and seasonal adjustments, in percent, year on year

Sources: Macrobond, Deutsche Bundesbank

Industries in Germany

Automotive industry: Passenger car production drops slightly

In the first quarter 2026, 1.06 million passenger cars were produced in Germany. This corresponds to a reduction of just over two percent compared to the previous year. Production levels this year so far were 16 percent lower than before the crisis in 2019. The automotive industry faces many challenges alongside the transition to electric vehicles. High fuel prices on account of the Iran war and the resulting inflation are cutting into consumer’s wallets and curbing the recovery of the Western European market, which is still one sixth below its 2019 level. Germany as a production location is also under pressure due to very high labour costs and excessive bureaucracy. For 2026 overall, we currently still expect production to drop by a moderate one percent down to 4.11 million units, provided that the war in the Middle East does not escalate. 2026 will also be dominated by electric mobility. EU’s stringent limits on carbon emissions will require a rapid ramp-up in the new registrations of electric passenger cars. In the first two months of the year, more than 38 percent of the cars produced in Germany were electric vehicles, while only around 30 percent of new registrations in the relevant European economic area were electric vehicles this year so far. This shows that German carmakers are taking the lead in the transition to electric mobility. No other major car-making country apart from China produces such a high proportion of electric vehicles. It remains to be seen to what extent the steep increase in fuel prices will increase the demand for electric cars.

The capacity utilisation rate of the automotive industry dropped down to 82.3 percent in the first quarter following seasonal adjustment from 84.9 percent in the previous quarter and is now at around the average level seen over the last five years. Incoming orders are displaying mixed trends. While domestic orders increased eight percent in the first quarter on the back of the new premium for electric cars, foreign orders fell six percent. The green transition is one of the factors that is putting pressure on the workforce of the automotive industry. In January, 713,700 people were employed in the automotive industry, which is 35,100 or 4.7 percent less than one year ago. The cut in the workforce of motor vehicle and engine producers at 4.8 percent of the total of 441,400 employees was not quite as pronounced as the reduction in the workforce of automotive suppliers that are particularly affected by the transition towards electromobility of 6.7 percent of a total of 229,500 workers compared to one year ago.

Exports

In the first quarter, exports decreased by a good two percent down to 800,000 passenger cars and the proportion of exports dropped by just over one percentage point down to 75 percent. Cars made in Germany are now mainly electric in Scandinavia, in the Benelux countries and meanwhile also in France. Major trade partners in the first two months of the year were the United Kingdom, with 66,400 units (-2%), slightly more than the United States with 64,300 units (-14%), where new tariffs are curbing demand. The next biggest destination country of exports was Italy with 33,400 cars (-10%), ahead of France which received 32,600 passenger cars (+12%). China (+2% up to 15,100 cars) ranked nineth.

Contact: Alexander Fritz / Phone: +49 30 8978 423 33 / Mail: alexander.fritz@vda.de

Construction industry: Positive prospects amid uncertainties due to Iran war

In 2025 overall, revenue across mainstream construction increased by 2.4 percent following price adjustment, the first rise in real terms in the last five years. The rise was not sufficient to compensate for the decreases in the past few years. Incoming orders in 2025 overall were 6.8 percent higher than in the previous year in real terms. The reach of orders in hand was even 10.2 percent higher at the end of the year. Not all segments of the construction industry developed equally positively. The downtrend in residential construction continued in 2025, with revenue falling 1.5 percent in real terms. According to an ifo survey, more than 40 percent of companies are still struggling with a shortage of orders. There are nonetheless positive signs for 2026. Incoming orders increased by ten percent in real terms and the volume of new mortgages for residential construction expanded. The number of permits for apartments in new apartment buildings amounted to 128,100 in 2025 which is 12.1 percent higher than in the previous year. The construction industry expects residential construction revenue to increase by two percent in 2026, although there are risks regarding the development of interest rates going forward.

Commercial construction is benefiting particularly from large projects of the Deutsche Bahn and the expansion of the electricity grid. In 2025, commercial construction recorded an increase in revenue of 6.5 percent in real terms. Alongside commercial civil engineering, the growing demand for data centres should also trigger an upwind for commercial construction this year. The weak industrial momentum will be a curbing factor though. As large orders take some time to play into revenue and only a few companies benefit initially before orders are passed down and spread out, sentiment in the industry is still subdued according to the ifo Institute and the German Chambers of Industry and Commerce. The construction industry is forecasting revenue in commercial construction to expand by four percent in 2026 in real terms.

Public construction recorded slightly below-average growth in 2025 with an increase of two percent in real terms. A particularly negative factor here was the restrained award of contracts of the Autobahn GmbH. Incoming orders in road construction decreased five percent in the year overall in real terms, despite a strong turnaround in December with an increase of 35 percent. The start of 2026 was also marked by a cold winter which curbed construction activity in civil engineering. The financing of the federal government’s planned projects this year for federal trunk roads, bridges, tunnels and federal waterways is secured by the special fund for infrastructure and climate neutrality. The construction industry therefore expects revenue from public construction to increase by a moderate 1.5 percent this year.

In 2026 overall, mainstream construction revenue is set to increase by 2.5 percent in real terms. Alongside the direct consequences of rising diesel and bitumen prices, there will be second-round effects in the form of rising prices for particularly energy-intensive building materials such as cement. First refineries have already raised their prices for bitumen which will also drive prices up for asphalt. In the medium term, these increased prices will also have a curbing effect on the investment activity of German companies.

The labour market for construction remains robust. Construction companies have expanded their workforce by a slim 0.7 percent. Companies with 20 or more workers even registered an increase of 1.1 percent. In 2026, the upward trend is set to continue with an increase in the workforce of one percent or 10,000 up to 933,000 workers.

Contact: Sophie Steffen / Phone.: +49 30 21286 144 / Mail: sophie.steffen@bauindustrie.de

Building materials industry: Risks curb cautious optimism

The building materials industry has been in a phase of frail recovery following the crisis in construction from 2022 to the end of 2024. Last year, the industry’s average production level stabilised, recording slight growth of 0.9 percent. Production was nonetheless still 24 percent lower than in 2021, with subsegments that supply the residential construction industry (such as masonry) up to 50 percent lower than before the crisis. At the start of 2026 (January/February), overall production dropped another 6.9 percent, but this was largely due to the very cold weather.

Although the factors that drive demand in construction are basically positive with a high need for residential accommodation, rising building permit numbers and additional public demand in connection with the special fund for infrastructure and climate neutrality, it is still at a low level. However, there are risks going forward particularly in view of the situation in the Middle East. The substantial increase in energy prices in the wake of the Iran war will increasingly impact the prices of building materials and construction depending on the duration of the conflict. At the same time, inflation is already rising and could again lead to increasing interest rate which would worsen financing terms for residential construction, in particular.

In case of a sustained increase in prices and interest rates, it can be assumed that the construction industry and the building materials industry will slow down. In this context, the cautious optimism in the industry is being restrained by the extremely high level of uncertainty. The assessment of the current situation and prospects in the building materials industry recorded by the ifo business sentiment barometer have nonetheless deteriorated yet further. If the geopolitical situation eases up swiftly, the German Building Materials Association (BBS) still expects production in 2026 to increase by around one to two percent, but in view of the current risks the trend going forward could well be less positive.

Contact: Christian Engelke / Phone: +49 30 7261 999 29 / Mail: c.engelke@bvbaustoffe.de

Chemical industry under pressure: Difficult situation with rising risks

The German chemical industry faces protracted difficulties, marked by a shortage of orders and structural problems of Germany as a production location. The latest geopolitical escalation in the Middle East has exacerbated the situation additionally. Performance in 2025 was again poor. Production was 3.3 percent lower than in the previous year. Production facilities in the industry were operating at a utilisation rate of 72.5 percent which is still not profitable. The shortage of orders remains the core problem. The industry’s revenue fell 3.8 percent. At the same time, the prices for chemical products are still under pressure. They have not fallen because of lower costs but because of the ever increasingly intense international competition, particularly from Asian producers.

The situation has not improved at the start of 2026. Although individual customer industries are showing first signs of stabilisation, such as parts of the automotive and construction industry, these trends are not yet improving the order situation in the chemical industry. At the same time, the costs of producing in Germany remain high and price competitiveness is still rated as negative. The relief measures initiated by policymakers including low grid fees, electricity price compensation and an industrial electricity price, have so far had almost no effect in practice and do not compensate for the structural disadvantages of producing in Germany. No wonder then that chemical companies have consistently rated their current situation as negative for over three and a half years now.

The prospects for the next six months have clouded over most recently due to the escalation in the Persian Gulf. The almost complete blockade of the Strait of Hormoz and targeted attacks on the energy and industrial infrastructure along the Persian Gulf are causing considerable upheavals on the global energy and commodity markets. Oil and gas prices have risen substantially, while energy markets have become tangibly more volatile. These developments have a direct impact on the costs of the energyintensive chemical industry.

The situation is further compounded by increasing risks for international supply chains. The Gulf countries are major suppliers of petrochemical feedstocks. If they are temporarily not available as suppliers, then this affects the European chemical industry because numerous inputs are highly dependent on imports. The supply situation is particularly tense for individual petrochemical inputs such as cyclohexane, glycol, melamine and methanol. These substances are essential for numerous chemical syntheses. The missing volumes can only be replaced partially by own production in Europe. Furthermore, Asian producers have also increasingly declared force majeure due to the conflict and suspended supplies. Polymer value chains are particularly affected. The disruptions are not limited to chemicals alone but affect entire industrial value chains.

Export prospects have also deteriorated significantly on account of the conflict. Restrictions in international air and maritime transport, rising transport and insurance costs and longer delivery times are factors additionally weighing down exports. For the chemical industry, this means that demand remains weak and orders continue to be in short supply. On account of the current uncertainties, it is not possible to reliably predict the development of the chemical industry in 2026 overall.

Contact: Christiane Kellermann / Phone: +49 69 2556 1585 / Mail: kellermann@vci.de

German electro and digital industry: Signs of recovery jeopardised by the war in Iran

After a marked setback in 2024, the German electro and digital industry stabilised last year. Thanks to an improved performance in the second half of the year, production in 2025 overall only dropped slightly while revenue, incoming orders and exports all recorded growth. After production in real terms continued to contract in the first two quarters of last year, falling by 2.2 and 2.0 percent respectively (year on year), it turned up in the third and fourth quarter with increases of 1.4 and 1.7 percent. All in all, production was only down by a marginal 0.3 percent in 2025 overall. The utilisation rate of production capacities improved correspondingly over the course of 2025 but, at 80.4 percent, were still underutilised at the start of the first quarter 2026.

Revenue in nominal terms recorded a slight increase in 2025, rising 2.3 percent up to 225.1 billion euros. Electro exports increased by 5.1 percent in 2025 overall reaching a new record level of 257.5 billion euros. Exports to the EU internal market increased, more than compensating for the reductions in exports to China and to the United States. The workforce contracted by 1.9 percent last year, down to 872,600 workers at the end of the year. The German electro and digital industry is nonetheless still the second largest industry in Germany in terms of workforce size. The number of workers on short-time work decreased slightly most recently down to only 13,000 workers in December.

Positive signs are coming from incoming orders and business sentiment. Incoming orders increased by six percent last year. The positive trend continued at the start of the new year with combined orders

in January and February 2.3 percent higher than in the previous year. The ifo business climate index brightened up in the course of 2025. In March 2026, both the current situation (balance at +2 percentage points) and prospects for the next six months (balance at +5 percentage points) were rated positively on balance by electro companies. The Iran war had not yet caused a tangible deterioration of prospects in March. In 2026 overall, the German Electro and Digital Industry Association (ZVEI) expects the production of the German electro and digital industry to grow by two percent in real terms.

Iran war triggers supply shock and causes additional uncertainty

The start of the Iran war, which triggered a traditional negative supply shock on the global economy in the form of higher energy prices, has led to a deterioration of the framework conditions for the electro and digital industry as well. While the industry is not likely to be much affected directly because it is not an energy-intensive industry itself and the Middle East is a comparatively small export market, it will be affected indirectly because some of its key customer industries are more energy-intensive and by negative macroeconomic effects. The scale of the macroeconomic effects will depend largely on the duration of the war. In the worst case, central banks would be forced to respond to higher inflation rates with a more restrictive monetary policy, while rising interest rates will be very detrimental on demand for capital goods. However, the further course of the war remains highly uncertain, not least because of the erratic policy of the US president.

Contact: Matthias Düllmann / Phone: +49 69 6302 329 / Mail: matthias.duellmann@zvei.org

Foundry industry: Persistently weak demand with progressive adjustment

The German foundry industry is still in an extremely challenging situation. In 2025, production dropped again by about three percent compared to the previous year, down to around 3.3 million tonnes. At the same time, the industry’s revenue fell around seven percent down to 13.1 billion euros. Despite this renewed setback, the industry stabilised somewhat in the further course of the year at a low level. Production remained steady over large parts of the year before registering slight growth year on year in the final quarter of the year for the first time in more than three years. Despite this stabilisation, demand remained weak. Although incoming orders in 2025 did not decrease as much overall as production, initially indicating a slight easing, the tide turned at the start of 2026 with another substantial slump in incoming orders down to a level last seen in the 1990s.

From a structural point of view, key indicators are continuing to become more disassociated from one another. While production levels stabilised at a low level, incoming orders and the reach of orders in hand trended divergently. The reach of orders in hand remained stable but this is largely due to the reduced level of production and changed production structures. More complex components, longer processing times and lower transparency on the market overall means that individual orders are taking longer to complete and the conventional correlations between incoming orders, production and order backlogs are disintegrating.

In parallel, the competitive situation is intensifying tangibly. Foundry imports from Asia increased around eight percent last year while domestic demand remains weak. Particularly on account of global

surplus capacities and trade diversion effects, additional volumes of foundry goods are flooding onto the European market. At the same time, increasing import volumes coupled with only moderately growing import values indicate an increasing pressure on prices which weighs down the earnings of domestic producers additionally. The ifo sentiment barometer is currently at minus 33.6 points which is its lowest level in four months. The current situation and prospects have remained in negative territory for 32 months now. Capacity utilisation is at around 75 percent which is still well below the long-term average of around 82 percent.

The pressure to adjust to the changing environment is also evident in the development of the workforce, which contracted by around seven percent in 2025. In view of the persistent underutilisation and weak demand, the pressure on employment levels will remain high in the further course of the year. A sideways movement on a low level is still expected for the industry in 2026 overall. The short-term stabilisation of production is taking place in an environment of weak demand, growing import pressure and structural changes in customer industries. A sustained recovery of the industry would necessitate a clear upwind in incoming orders which is currently certainly not on the cards.

Contact: Dr. Tillman van de Sand / Phone: +49 211 6871 301 / Mail: tillman.vandesand@bdguss.de

Glass industry: Situation remains difficult with momentum well below pre-crisis level

The ifo sentiment barometer for the glass industry has been at a very low level since May 2023 at around 80 points (2015 = 100). Although there was an improvement in the interim, this was based on brightened business prospects rather than an actual improvement of business. In March 2026, sentiment in the glass industry was still around 20 points lower than its pre-crisis level.

This is also reflected in the revenue and production figures of the Federal Statistical Office. Revenue in 2025 decreased 4.8 percent compared to the previous year, down to 10.7 billion euros. Both domestic revenue (-4.1%) and foreign revenue (-5.8%) decreased. The production index, which is the price-adjusted production level, dropped by 5.4 percent in 2025 overall and was only at 76.2 points in December 2025 following calendar and seasonal adjustment (2021 = 100). Although glass production is also downward in other European countries, the downtrend in Germany is more pronounced than in France, Italy and Spain.

The increase in imports and the parallel decrease of exports is worrying. Imports increased 4.6 percent while exports decreased 7.4 percent during the same period. Although the net exports of the glass industry, i.e. the difference between exports and imports, remains clearly positive at around 660,000 t or 1.25 billion euros, it is declining every month. This is an indication that the competitiveness of the German glass industry is falling steadily.

The glass industry is in a difficult economic position. Production has been shut down in part or in full or the whole site has closed at more than six production sites. This is also confirmed by figures from the Federal Statistical Office. The number of companies with 20 employees or more contracted by 5.8 percent down to 360. The number of workers in the industry decreased by 4.9 percent and is at just over 51,000.

About two thirds of exports of the German glass industry are destined for other European countries. As growth momentum is low across the region, the prospects for the glass industry going forward have clouded over. We expect production levels to remain at their current level.

Contact: Dr. Johann Overath / Phone: +49 211 9022 7820 / Mail: overath@bvglas.de

Aviation: Crisis in the Middle East poses additional burden

The German aviation industry is greatly affected by the current crisis in the Middle East. More than 40 percent of flights between Germany and the region have had to be cancelled. The price for kerosine has more than doubled, with a shortage of supply looming in parts of Asia and Europe. In addition, German airlines are forced to make a wide berth around the crisis region on it by negative macroeconomic effects and their flights to and from Asia which extends flight times and increases fuel consumption and affects both commercial passenger and freight flights.

Last year, Germany lagged far behind other European countries in terms of the volume of seats available. In 2025, the number of seats available to, from and within Europe (EU / EEA / UK) was at 106 percent of the pre-crisis level of 2019. Excluding travel to, from and within Germany, the recovery was already at 108 percent. Looking only at travel to, from and within Germany, the number of seats available was only at 89 percent of the pre-crisis level, which is 19 percentage points lower than in the rest of Europe.

The recovery of demand followed the same trajectory as supply and continued to weaken in 2025 compared to the previous year. While, in 2024, 7.5 percent more passengers were transported than in 2023, the increase dropped to 3.6 percent in 2025. German airports recorded a total of 219.6 million passengers last year. This corresponds to 88 percent of the record numbers seen in 2019.

The main reasons for this development are the following: European point-to-point carriers are increasingly shifting their business activities to airports outside of Germany. While this business area has grown to meanwhile 131 percent of the level of 2019, it is only at 82 percent of the 2019 level in Germany. The main reasons for this development are steep increases in public charges and fees in Germany such as aviation tax, aviation security fees and flight security fees. These charges and fees on air travel in Germany have become considerably higher than in most other European countries. The reduced flights available negatively affects the connectivity of German business locations particularly to large European cities

At the same time, local air travel within Germany has shrunk considerably since 2019. The number of flights on offer in 2025 was only at 50 percent of the pre-crisis level. Transport on decentral routes, in particular, that are not connected to Germany’s main international hubs such as Frankfurt and Munich has shifted primarily to roads or been replaced by digital means of communication. More than 80 percent of decentral flight connections, principally of point-to-point airlines, have already disappeared. The number of seats available in tourist travel increased, rising to 133 percent of the level recorded in 2019. However, at 16 percent, it only accounts for a comparatively small section of the market.

US tariff policy triggered several peaks in demand in 2025 for urgent air freight transport. Compared to 2024, the volume loaded at German airports increased by 1.6 percent up to around 4.86 million tonnes. Air freight was thus 1.2 percent higher than in 2019. In 2025, freight unloading increased by

2.1 percent while freight loading only increased by 1.2 percent. The prospects for the next six months forecast a growth of two percent in the seats available in Germany compared to the same period last year, and substantially higher growth of seven percent for the rest of Europe.

Contact: Dirk Helf / Phone: +49 30 5200 77 145 / Mail: dirk.helf@bdl.aero

Machinery manufacturing: Cautious recovery amid high uncertainty

The German machinery and plant manufacturing industry experienced a difficult year in 2025 on the whole marked by an unusually high level of uncertainty. The trade dispute with the United States and geopolitical tensions curbed global investment activity and, with it, the demand for capital goods. The tariffs on steel and aluminium derivatives are an additional burden on trade with the US market, which is an important market for the industry. Further compounding the situation are the structural problems of Germany as a production location which reduce international competitiveness and were not addressed last year. In this context, incoming orders following price adjustment stagnated in the year overall (0%). While orders from euro partner countries trended upwards, demand from outside the euro area and at home remained weak. Production dropped 2.2 percent in real terms according to the first revision of data, continuing the downward trend that has lasted since 2023. Although there was a degree of stabilisation in the second half of the year, it was not enough to compensate for the losses in the first half of the year. Capacity utilisation at the end of 2025 was at only 78.3 percent which is well below the long-term average. Production facilities are therefore still being considerably underutilised. In parallel to the low capacity utilisation rate, the workforce has continued to shrink. At the end of 2025, there were around 997,000 workers in machinery and plant manufacturing which corresponds to a reduction of 2.6 percent compared to the previous year.

A slight recovery amid high risks is in store for 2026. Geopolitically, the continuing war in Iran represents the main risk. A prolonged escalation could potentially lead to a long-term increase in energy prices, disrupt supply chains and tangibly curb global investment activity. In trade policy, the primary factor of uncertainty remains the structure of US trade policy going forward. Additional tariffs and possibly additional trade policy measures could continue to weigh down trade with the United States. Prospects for the German domestic market largely depend on the implementation of announced reforms. Public investment and an expansionary course in fiscal policy could inject impetus in the short term but will only have a limited impact on German machinery and plant manufacturing in the long term if the structural problems of Germany as a production location are not sustainably improved. This would require reforms to tackle issues including the high degree of bureaucracy, the high tax burdens and the high non-wage labour costs. At the same time, framework conditions need to be created to turn Germany into an innovative location. The industry regards the provision of leading technological solutions as its biggest opportunity in international competition. In the short term, however, the economic development of the industry will be largely determined by the current geopolitical tensions and trade disputes. For 2026 overall, the German association of machinery manufacturers, the VDMA, expects production to increase by one percent following price adjustment compared to the previous year as long as the risks outlined above do not escalate in the long term.

Contact: Dr. Tilmann Härtl / Phone: +49 69 6603 1551 / Mail: tilmann.haertl@vdma.org

Paper industry remains under pressure in 2025: Production, sales and revenue all pointing down

In 2025, the production of paper, paperboard and cardboard was once again lower than in the previous year. Overall, 18.7 million tonnes were produced in Germany which corresponds to a reduction of 2.5 percent compared to 2024. The downward trend was already evident in the first six months of the year although the percentage change was moderated slightly by a statistical base effect in the second half of the year. The absolute figures nonetheless clearly show that the situation remains tense. The annual production volume was close to the lowest level recorded by the industry in the last ten years. The production of the German paper and pulp industry had been very stable for decades until 2023 when a combination of weak overall economic momentum, high energy prices and strongly decreasing demand brought an end to this continuity.

The trends in the individual segments were once again divergent in 2025. The structural shift towards packaging continued, while production volumes of graphic paper continued on a clear downward path.

Last year, 12.5 million tonnes of paper, paperboard and cardboard were produced for packaging (+1.8%). Overall, packaging paper accounted for 67 percent of total German production in 2025. This segment thus stabilised the industry although weak industrial production levels overall and low consumer demand represent challenges for the producers of packaging paper. The structural reduction in the production of graphic paper continued apace last year. The annual production of graphic paper totalled 3.4 million tonnes which represents a reduction of 16.7 percent compared to 2024. Last year, 1.35 million tonnes of sanitary paper items were produced (-2.8%). Technical and special paper recorded a production volume of 1.39 million tonnes in 2025 which corresponds to an increase of 1.3 percent.

Drop in domestic revenue again steeper than in foreign revenue in 2025

In 2025, the sales volume dropped 1.7 percent year on year down to 18.7 million tonnes. Sales at home were once again weaker than sales abroad. Sales in Germany decreased 2.8 percent year on year down to 9.2 million tonnes. Foreign sales of paper, paperboard and cardboard amounted to 9.6 million tonnes, just slightly lower than last year (-0.7%). The European Union remained the largest foreign market for the German paper industry, accounting for 78 percent of foreign sales.

In 2025, the industry’s revenue amounted to 14.2 billion euros which corresponds to a drop of five percent compared to 2024. This was the third consecutive year of downward sales and many companies in the industry are struggling with lower earnings. Numerous paper machines were shut down and some production locations closed completely in 2025. At the end of the year, there were only 216 paper machines left in operation across 128 locations in Germany with a corresponding impact on the size of the workforce. In the last five years, the number of workers in the industry has decreased from 45,600 down to around 41,000.

Contact: Dr. Thomas Moldenhauer / Phone: +49 172 2188 501 / Mail: t.moldenhauer@papierindustrie.de

Pharmaceutical industry: US policy curbing uptrend

The economic development of the German pharmaceutical industry is largely shaped by US tariff policy, with tariffs acting less as a conventional barrier to trade and more as a strategic tool to induce

investments in the United States and price concessions on the US market. In response to the announced tariffs, many companies frontloaded supplies and stocked up inventories in the United States.

This caused a spike in domestic sales last year. After a robust start to 2026, sales are set to cool off in the further course of the year but remain higher than last year overall. Frontloading effects were particularly apparent in foreign sales. The dip which usually follows on from frontloading did not materialise initially as continuing uncertainty about possible tariff rates, intensified by renewed threats in autumn, triggered further spikes in production. The reductions registered since the start of the year do not therefore represent an economic slowdown but rather a normalisation which will probably lead to a lower average production level for the year overall. After a temporary lull, a moderate uptrend should set in from the summer onwards which will nonetheless continue to be curtailed by US trade barriers.

After strong growth in the final quarter of 2025, production dropped considerably according to the latest figures and is likely to lag behind sales for the time being. A negative factor is the bleaker export prospects on account of the Iran war. Curbing production further are fears of possible shortages in key inputs and rising costs, such as in air freight. Production should pick up pace in the further course of the year if the geopolitical situation eases up, also in view of the low level of inventories at last count. On account of the lull at the start of the year, production in the middle of the year is just under one percent lower than last year.

Employment levels continue to be more robust in the industry than in the industrial sector overall even though momentum has flagged considerably. Companies are making increasing use of automation and artificial intelligence to improve efficiency and counter the shortage of skilled staff. The workforce is therefore expected to only increase moderately.

Contact: Dr. Simon Junker / Phone: +49 151 2215 7308 / Mail: s.junker@vfa.de

Steel and metal processing: 2025 marks the fourth year of recession with production down 0.9 percent

The production of steel and metal processors in Germany decreased 0.9 percent in 2025 compared to the previous year. After four consecutive years of recession, the level of production is 2.1 percent lower than in the first year of the Covid pandemic in 2020. Production has declined by more than one tenth since 2022 and the difference to the pre-crisis levels has risen to 14.6 percent (2019) and 19 percent (2018). In the second half of 2025, the industry nonetheless recorded an increase in production of 1.2 percent year on year. Production was 2.1 percent higher year on year in the final quarter. Demand also picked up in the last months of 2025, although not across all segments. In the first two months of 2026, the recovery has not continued with production falling by 0.3 percent and incoming orders by 1.5 percent. Hopes that 2026 would be the first year of growth after a long period of downturn may be disappointed. Companies have responded to the structurally reduced production levels by cutting down on workforce capacities at home and shifting investments abroad in so far as they have this option as midsized companies. The workforce at the start of 2026 was 3.5 percent smaller than in the previous year. In parallel, the utilisation rate of production facilities dropped down to 72.4 percent.

In March, the sentiment among steel and metal processing companies in Germany has plunged deeper into negative territory on account of the escalation in the Middle East. After uncertainty had already

driven sentiment down in the preceding months, it deteriorated further with ratings of the current situation sliding down 4.6 balance points and business prospects seven points. The hope remains that hostilities are terminated and that solid agreements bring about long-term peace in the region. Energy prices would then drop back down and bottlenecks in supply chains ease up, enabling fresh momentum towards economic recovery. In the interim, policymakers in Europe and Germany need to set the course to provide for the long-term competitiveness of the industrial sector.

Contact: Holger Ade / Phone: +49 211 9578 6822 / Mail: hade@wsm-net.de

Steel industry in April: No sustained recovery in sight

The steel industry is in an extremely challenging economic position, with demand weaker than ever before and huge import pressure. Furthermore, the current geopolitical situation and growing uncertainty are threatening to further dampen hopes for a recovery anytime soon. In 2025, crude steel production in Germany amounted to 34.1 million tonnes which is around nine percent lower than last year’s level which was already low. Output had not been that low since the global financial crisis in 2009. 2025 was the fourth consecutive year in which production was under 40 million tonnes. This threshold is regarded as the minimum for a healthy capacity utilisation rate and the industry has been struggling to reach this since 2018.

The demand for steel has been weak since 2017 and remained downward in 2025 across all key customer segments. Steel demand in Germany has lost around 30 percent in volume up to and including 2025, which corresponds to about twelve million tonnes. Although the market supply stabilised slightly, this mainly constituted a stocking-up of inventories rather than a real increase in demand. Germany has fallen two places in the ranking of the world’s leading steel consumers since 2017, down to eighth place in 2025.

Alongside weak demand, the steel industry in Germany and Europe has been facing a pronounced import crisis for some time now. The reasons for this crisis are the current and constantly increasing global surplus capacities in steel outside of Europe. The OECD expects steel surplus capacities to increase to more than 700 million tonnes by 2027. That corresponds to more than five times the total EU crude steel production in 2025, which was around 130 million tonnes. Capacity is being extended largely in Asia, principally in China and in India and the Middle East. In contrast to India and the Middle East, China has been experiencing flagging domestic demand since 2020 already. Chinese steel exports have therefore increased on a massive scale, particularly to the EU market. US tariffs are further exacerbating the situation with imports increasingly diverted to the EU market.

Early indicators are not providing any solid indications for increased momentum as yet. While incoming orders have risen at home and abroad, they are still on a very low level. Furthermore, the effects of the Iran war are not yet fully reflected in the figures. In addition, the ifo business climate index has been below the long-term average since 2022, mainly due to the persistently weak situation.

Contact: Bernhard Krischer / Phone: +49 211 6707 963 / Mail: Bernhard.Krischer@wvstahl.de

Textile and clothing industry

2025 marked the second consecutive year of downward economic indicators for the textile and clothing industry. Sales, employment levels and foreign trade were all downward. The only slight nominal increase was registered in retail sales. Prices have stabilised on a high level. Recent surveys reflect both the stagnation experienced in the last few months as well as cautious and sustained optimism.

In nominal terms, the revenue of the German textile and clothing industry lost 2.6 percent in 2025 overall. After 2024, this was the second consecutive year in which both segments and the industry as a whole recorded falling sales. In textiles, the drop in revenue of 3.2 percent was not just more pronounced than in clothing, which lost 1.8 percent, but represented the third successive year of downward sales which is also due to the significantly reduced number of textile companies in Germany. Sales were down particularly among the conventional upstream and midstream companies and energy-intensive subsegments. For the clothing segment, 2025 was the second consecutive downward year after 2024. Producers of outerwear registered particularly pronounced downtrends while workwear and hosiery were upward but not even enough to compensate for the downward momentum in clothing and make the overall result positive. Weak foreign trade was a key reason for the downward trend, particularly in markets outside of the EU. This was different in the case of foreign trade for the industry as a whole, where the export volume dropped particularly to the EU.

The revenue of clothing retailers was only marginally positive in 2025, rising 0.8 percent in nominal terms. In real terms, revenue stagnated last year. The purchase prices for commodities generally only increased moderately over the course of last year. On account of the frail economic trends and global uncertainty, some prices have also fallen somewhat. Overall, though, prices are still well above their pre-Covid level. The higher energy prices are particularly affecting purchase prices. The costs for sea forwarding, in contrast, are on a low level.

The ifo business sentiment index for the textile and clothing industry barely moved in the course of 2025. The ratings of current business showed particularly little change, while prospects brightened somewhat. The optimism seen over the last few months were based on hopes of a turnaround that has not yet materialised. The survey conducted by the German textile and clothing industry association at the start of 2026 showed a slight improvement in sentiment in both textiles and clothing. However, this was largely due to more optimistic assessments of future prospects going forward rather than real positive developments. In view of the current global political developments surrounding the Iran war, however, a recovery is not on the cards in the near future.

Contact: Marcus Jacoangeli / Phone: +49 30 7262 2024 / Mail: mjacoangeli@textil-mode.de

Imprint

Federation of German Industries e.V. (BDI)

Breite Straße 29 10178 Berlin

T: +49 30 2028-0 www.bdi.eu

German Lobbyregister Number R000534

Author

Thomas Hüne

T: +49 30 2028 1592 t.huene@bdi.eu

Editorial / Graphics

Dr. Klaus Günter Deutsch

T: +49 30 2028 1591 k.deutsch@bdi.eu

Marta Gancarek

T: +49 30 2028 1588 m.gancarek@bdi.eu

This report is a translation based on „Industriebericht | Industrieproduktion und Handel nach Branchen“, as of 20 April 2026