Eurozone industrial production unexpectedly increased month-on-month in February, ending a two-month consecutive decline. However, this brief improvement fails to alter the outlook: risks are mounting that output could fall back into contraction in the coming months as ongoing conflict in the Middle East continues to drive up energy prices.

Eurostat, the EU's statistics agency, reported on Wednesday that industrial production in the eurozone rose by 0.4% in February, reversing a 0.8% decline recorded in January. According to a survey of economists, markets had anticipated a 0.1% decrease for February, meaning the actual performance significantly exceeded expectations.

Nevertheless, Bert Colijn, Chief Economist for the Netherlands at ING Groep NV, warned that "the Middle East war has shattered hopes for a broad recovery in eurozone industry" and advised "not to expect a rebound in the near term." The International Monetary Fund (IMF) also contributed to the cautious sentiment on Tuesday, downgrading its 2026 growth forecast for the eurozone from 1.3% to 1.1%. It cited a "major energy crisis," potentially triggered if the Middle East conflict is not durably resolved, as a key downside risk.

Previously, supported by fiscal stimulus in Germany and improving market sentiment, eurozone industrial activity had shown signs of stabilisation towards the end of 2025. However, the sharp increase in oil and gas prices is expected to impose new systemic pressure on the industrial sector starting in March, keeping a sustained recovery out of reach.

The structure of the growth was imbalanced. Among the currency bloc's five largest economies, only Italy registered positive output growth. The other four major economies all experienced declines, indicating that the foundation for an industrial recovery in the eurozone remains fragile.

Bert Colijn described the "start of 2026 as disappointing." Although manufacturers' optimism regarding prospects for infrastructure and defense investment has increased, the impact of the Middle East war has dashed hopes for a broad-based recovery.

The German Ifo Institute noted that the conflict involving Iran has already had a tangible impact on energy-intensive sectors within the eurozone. Affected areas span core manufacturing sectors, including automobiles, chemicals, pharmaceuticals, and mechanical engineering.

Economists point out that the current scale of the energy shock is not yet comparable to the energy crisis triggered by the Russia-Ukraine war. However, if the Middle East conflict persists, the threat to the industrial sector will continue to intensify. The significant rise in oil and gas prices is expected to further drag on industrial output beginning in March.

The IMF's downward revision of its growth forecast adds to the gloomy outlook. On Tuesday, it cut its 2026 growth projection for the eurozone to 1.1%, down from the 1.3% forecast in January. It explicitly identified a "major energy crisis," potentially resulting from a failure to achieve lasting peace in the Middle East, as a core downside risk.

Regarding the subsequent trend, ING Groep NV's Bert Colijn was direct in his assessment: "Do not expect a rebound in the near term."