Unexpected rebound of 0.4%! Eurozone industrial output unexpectedly turned positive in February, but ING warns: the Middle East situation may cause output to return to contraction.

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Eurozone industrial output unexpectedly achieved month-on-month growth in February, ending two consecutive months of decline. However, this brief improvement did not change the outlook: as the ongoing Middle East war continues to drive up energy prices, the risk is mounting that output will return to contraction in the coming months.

Eurostat, the EU’s statistics agency, announced on Wednesday that Eurozone industrial output grew 0.4% month-on-month in February, reversing January’s 0.8% decline. According to economists’ surveys, the market had previously expected a 0.1% decrease in February, so the actual performance was significantly better than expected.

However, ING Netherlands Chief Economist Bert Colijn warned that "the war in the Middle East has dashed hopes for a broad-based recovery in Eurozone industry," and stated “do not expect a rebound in the near term.” On Tuesday, the International Monetary Fund (IMF) also lowered its Eurozone GDP growth forecast for 2026 from 1.3% to 1.1%, listing the possibility of a “major energy crisis” caused by an unresolved Middle East conflict as a key downside risk.

Previously, Eurozone industrial activity showed signs of stabilizing by the end of 2025, buoyed by German government fiscal stimulus measures and improved market sentiment. But the sharp surge in oil and gas prices is expected to exert new systemic pressure on the industrial sector starting in March, making a sustained recovery remain out of reach.

Imbalanced growth: Only Italy among the five biggest economies sees positive output

The February increase in industrial output was mainly contributed by the Eurozone’s smaller economies. Among the five largest members of the currency union, only Italy registered positive output growth, while the other four major economies all saw a decline, reflecting the still fragile foundation of the Eurozone’s industrial recovery.

Bert Colijn stated, "2026 has had a disappointing start." While manufacturers’ optimism about infrastructure and defense investment prospects has grown, the Middle East war’s impact has dashed hopes for a broad-based recovery.

Germany’s Ifo Institute pointed out that the Iran war has already inflicted substantial impact on the Eurozone’s energy-intensive sectors, affecting core manufacturing industries such as automobiles, chemicals, pharmaceuticals, and mechanical engineering.

Economists noted that the current energy shock is not as severe as the energy crisis triggered by the Russia-Ukraine conflict, but if the Middle East conflict drags on, the threat to the industrial sector will intensify. The surge in oil and gas prices is expected to further drag down industrial output starting in March.

IMF cuts growth forecast; recovery outlook remains gloomy

On Tuesday, the IMF lowered its Eurozone 2026 growth forecast from 1.3% (as predicted in January) to 1.1%, explicitly identifying the Middle East conflict’s failure to reach lasting peace as a core downside risk that could spark a “major energy crisis.”

As for future trends, ING’s Bert Colijn’s wording was direct:

“Do not expect a rebound in the near term.”

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