Eurozone retail sales fell unexpectedly in July, a sign that the currency area's resilience in the face of high energy prices might be faltering even as separate figures pointed to a continued recovery in German industry.

Retail sales volumes fell by 0.6% on month compared with a 0.2% increase in June, according to data published Friday by the European Union's statistics agency. A forecast by economists polled last week by The Wall Street Journal expected volumes to rise by 0.3%.

The fall in retail sales came as consumers faced lingering pressure from high energy prices while the war in Iran drags on. Volumes were hit particularly hard in Germany, down 3.4% on month, while smaller losses of 0.9% and 0.3% were recorded in Spain and Italy, respectively.

"The fall in eurozone retail sales in July was the largest monthly decline in over a year and suggests that consumption made a weak start to 3Q," said Harry Chambers, an economist at Capital Economics.

The other side of the German economy, however, is showing signs of recovery. Manufacturing orders in the eurozone's largest economy climbed again in July, up 2.5% on month, following an upwardly revised 3.7% rise in June, data agency Destatis said Friday. A consensus of economists polled last week by The Wall Street Journal had expected a small fall of 0.1%.

That marked a third consecutive monthly increase, continuing a decent run of industrial data even as the war in the Middle East sent oil-and-gas prices higher. Orders were 13.1% higher than the same month of last year. Industrial production data for July is due on Monday, following three consecutive monthly gains.

Almost all of July's rise in orders was due to larger orders of transport equipment, a grouping of goods that includes ships, trains and aircraft, Destatis said.

A tentative recovery for German industry has bolstered resilience in the wider eurozone economy since the outbreak of the Iran conflict. Gross domestic product outpaced that of the U.S. in the second quarter, with business surveys pointing to further growth in the third quarter.

And despite the decline in retail sales, consumer confidence improved in July and August as perceptions of the economy strengthened over the summer even with escalating conflict in the Middle East.

While inflation in the eurozone hit a near-three-year high in August, and is set to remain far above the European Central Bank's target of 2% into 2027, the core inflation rate has remained relatively stable. There are few signs as yet of higher energy prices feeding through into other areas of the economy, with services inflation slowing in August and consumer surveys showing less concern over price increases.

"Looking ahead, we still think that retail sales and overall household consumption will rise over the second half of this year. There is plenty of scope for households to reduce their saving rates further," Chambers said.

Meanwhile in Germany, there are signs that manufacturing continues to be propped up by stockpiling as the closure of the Strait of Hormuz exerts supply constraints in the industry.

Much of the increase in July was driven by a 4.3% jump in intermediate goods orders--those used to make other products like chemicals or semiconductors. Since consumer products orders declined 4.8%, it suggests those intermediate goods aren't being immediately turned into final products.

That could mean some of the industrial upturn that has helped the German economy might reverse in the second half of the year as stockpiling subsides.

But looking ahead, there appears to be no immediate setback. Production activity growth was the strongest in August since January 2022, driven by a jump in orders, according to purchasing managers' surveys published this week.

Despite energy prices continuing to inch higher as Middle East tensions escalate, and heatwaves stymieing the flow of goods through the River Rhine, business expectations among manufacturers are now the strongest since February, before the first U.S.-Israeli strikes on Iran, the survey showed.

Headwinds could emerge from the country's traditionally key car industry, where orders in July sank back 12.5% on month. Symbolizing the shifts taking place in the sector, the board of auto giant Volkswagen on Thursday approved 50,000 more job cuts and a halving of its model portfolio as it pivots its strategy amid Chinese competition.

The European Central Bank is expected to raise its key interest rate next week, which could squeeze financing conditions for some manufacturers.

However, the manufacturing sector is expected to contribute more to Germany's economic growth than at the start of 2026. The Ifo Institute, a German economics think tank, on Thursday raised its expectations for growth this year, noting that orders have steadily improved and export expectations have recently climbed significantly.

Domestic demand climbed in July, a factor that is set to continue as hundreds of billions of euros in fiscal stimulus from the German government continue to flow to defense and infrastructure projects.