Germany's Industrial Sector Faces Unexpected Decline in January 2026

Germany's industrial sector experienced a significant downturn at the start of 2026, with factory orders dropping by 11.1% in January compared to December, according to data from the country's statistics office. This decline ended a streak of four consecutive months of growth and was notably worse than analysts' predictions of a 4.5% decrease. When excluding large-scale orders, the decline was reduced to 0.4%. The downturn follows a substantial increase in December, which marked the highest level of orders since February 2022.

Reuters

The decrease in orders was largely attributed to a sharp 39.4% drop in orders for metal products, alongside declines in mechanical engineering (13.5%) and metal production and processing (15.1%). These reductions were primarily linked to the volatility of large orders, which had inflated the December figures. Conversely, the automotive sector saw a positive trend, with orders increasing by 10.4%, and other vehicle manufacturing also reported a rise of 9.2%.

Germany January industrial orders -11.1% vs -4.5% m/m expected

In addition to falling orders, Germany's industrial production unexpectedly decreased by 0.5% in January, contrary to analysts' forecasts of a 1% increase. This decline was particularly pronounced in the metal products sector, which saw a 12.4% reduction in output. Despite these setbacks, some economists maintain a cautiously optimistic outlook for the year, contingent on geopolitical stability, particularly regarding the ongoing conflict in Iran. LBBW economist Jens-Oliver Niklasch remarked, “These figures are not for the faint of heart,” yet expressed hope that overall economic performance would improve compared to the previous year.

Reuters

Union Investment's Michael Herzum emphasized the potential for the German industry to transition from a growth drag to a growth engine by 2026, contingent on sustained government investment in defense and infrastructure. However, the German economy ministry has warned that the risks associated with the war in Iran could significantly impact industrial performance, a concern not yet reflected in current economic indicators.

Reuters

While the overall decline in industrial orders is clear, there are discrepancies in the interpretation of the data. Some analysts highlight the less volatile three-month comparison, which shows a 1.5% increase in new orders when large orders are excluded. This suggests that while January was weak, the broader trend may not be as negative as the headline figures indicate.

Germany January industrial orders -11.1% vs -4.5% m/m expected

• “These figures are not for the faint of heart,” — Jens-Oliver Niklasch, Economist at LBBW

Reuters

• “(The) industry should transform from a drag on growth to an engine of growth by 2026, assuming the war with Iran does not escalate permanently,” — Michael Herzum, Analyst at Union Investment

Germany’s industry makes unexpectedly weak start to 2026

• “The spark from fuller order books hasn’t yet ignited production,” — Alexander Krueger, Chief Economist at Hauck Aufhaeuser Lampe

Germany’s industry makes unexpectedly weak start to 2026

In summary, Germany's industrial sector is grappling with unexpected challenges as it begins 2026, with significant declines in orders and production raising concerns about future economic stability.

Germany’s industry makes unexpectedly weak start to 2026