German industrial output rises more than expected in August

By Aleksandra Kret and Emanuele Berro

Oct 7 (Reuters) - German industrial production rose more than expected in August despite disruptions to Rhine shipping caused by low water levels, driven by stronger activity in construction and machinery production, official data showed on Wednesday.

The industrial sector is benefiting from Germany's rising defence spending, as well as digitalization, including artificial intelligence.

Output rose 2.0% from the previous month, the strongest increase since March 2025 and well above the 0.5% rise forecast by analysts polled by Reuters. The increase more than offset a revised 1.2% decline in July.

"This comes as a major surprise," said Thomas Gitzel, chief economist at VP Bank. "Given the low water levels on German rivers and the resulting negative impact on supply chains, a decline in production could not have been ruled out. This makes the increase in output all the more welcome."

CONSTRUCTION OFFSETS AUTO WEAKNESS

The increase was driven by a 9.3% rise in construction output, led by specialised construction and finishing trades, the federal statistics office said.

Industrial output alone, excluding energy and construction, rose by 0.6%, supported by a 5.3% increase in machinery and equipment production.

The automotive industry recorded another decline of 5.4%.

According to auto industry association VDA, this was partly due to seasonal factory shutdowns falling more heavily in August this year than in the same month of 2025.

Catch-up effects are likely to occur in the automotive industry in September, which could push industrial production once again into positive territory, Gitzel said.

"There is a good chance that German gross domestic product will grow by more than 1% in 2026", he added.

"AI BOOM HAS REACHED GERMANY"

Digitalization, of which AI is a part, is also helping the industrial sector.

"This development shows that the boom surrounding AI and data centers has reached Germany, too," said KfW economist Sebastian Wanke.

The less volatile three-month comparison showed that production was 0.4% higher in the period from June to August than in the previous three months.

Compared with August 2025, production was up 2.3% after adjusting for calendar effects. 

(Reporting by Aleksandra Kret and Emanuele Berro in Gdansk; Editing by Thomas Seythal and Jan Harvey)