German industrial production and orders declined far more than expected in January, official data showed Monday, piling pressure on Chancellor Friedrich Merz to revive Europe’s top economy, which has long been struggling with weak or no growth.

Production ticked down 0.5%, the federal statistics office Destatis said, compared to a rise of 0.9% expected in a poll of analysts by financial data firm FactSet.

Industrial orders, meanwhile, plunged 11.1%, a far bigger fall than the 5.2% decline expected in a FactSet analyst poll.

“These numbers are a clear disappointment,” said economist Dirk Schumacher of public lender KfW.

“The simultaneous slump in order intake indicates that the upturn has so far left industry behind.”

A series of brighter data releases since the start of the year had boosted hopes that German industry – struggling with weak demand, U.S. tariffs, high energy costs and fierce Chinese competition – could be turning a corner.

But new figures underline just how fragile any recovery is, making grim reading for Merz, who has made boosting Germany’s flatlining economy his top priority.

Increased government spending on defense and other sectors was helping some sectors, Schumacher said, but there was little evidence this was sparking a widespread recovery.

“There are certain areas, such as the defence sector, which are developing very dynamically,” he said. “However, this is not enough to trigger a broad upturn in industry.”

Germany’s economy has barely grown since 2022, following a burst of pent-up demand after the Covid pandemic. In January, the government lowered its growth forecast for 2026 to 1%.

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Türkiye’s exports to Germany achieved their highest February performance of all time, with volume at about $1.66 billion, according to a report on Monday.

Türkiye’s exports in general continued to demonstrate a positive trend despite challenging international economic, trade, political, and geopolitical developments. The effective trade diplomacy carried out by Türkiye is also considered to have had a positive impact on its exports.

The country’s total exports last month increased by 1.6% compared to the same period last year, reaching $21.06 billion in February, according to information compiled by Anadolu Agency (AA) from the data shared by Türkiye Exporters Assembly (TIM).

At the same time, Türkiye’s monthly exports to Germany rose 11.9% year-over-year when they stood at about $1.48 billion.

Thus, Germany maintained its leadership in Türkiye’s exports.

Meanwhile, exports to other countries in February were as follows: to the United Kingdom (1.1 billion), Italy (1.01 billion), the U.S. (some $994.7 million) and France ($861.6 million).

Automotive industry leads exports

When examining the sectors that exported the most to Germany and increased their exports the most during this period, the industrial group stood out.

In February, the sector that exported the most to Germany was the automotive industry with $543.9 million.

This sector was followed by ready-to-wear and apparel with $198.2 million, iron and non-ferrous metals with $130.4 million, chemical substances and products with $116.9 million, and the electrical and electronics sector with some $100.2 million, respectively.

In February, the automotive industry also stood out in export increases compared to the same period last year. During this period, the automotive industry saw its shipments rise by $75 million to Germany.

In export growth, the automotive industry was followed by iron and non-ferrous metals and chemical substances and products with $22.7 million each, hazelnuts and hazelnut products with $15.2 million, and the jewelry sector with $13.5 million.

The iron and non-ferrous metals sector exported $130.4 million to Germany, while the export volume of hazelnuts and hazelnut products sector was worth $63.2 million, according to the data.

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U.K. borrowing costs surged again on Monday on rising energy prices, while the government is talking to international partners and its central bank to ⁠assess ways to limit economic damage from ⁠the escalating Iranian crisis, Prime Minister Keir Starmer said, warning a prolonged crisis could be painful.

British borrowing costs have soared since the conflict erupted ​more than a week ago – by more than those ​of ⁠other European countries and the U.S. – as investors fear that surging oil and gas prices will stoke already stubborn inflation.

Rate futures on Monday suggested investors were largely bracing for an interest rate increase by the Bank of England (BoE), reversing bets on a cut.

“The longer this goes on, the more likely the potential for an impact on our economy,” Starmer said.

The jump in energy prices also risks forcing the government to intervene again to cushion the economic blow if the conflict rages on, a potential huge challenge to a government that has limited room to increase spending and is widely unpopular.

‘Monitoring the risk’

Starmer ⁠told ⁠an event in London on Monday that the government was trying to limit the fallout.

“What we’re doing is monitoring the risk, working with others to mitigate the risk,” he said.

“The chancellor is talking with the Bank of England every day to make sure that we’re ahead of that, on energy prices for households.”

Starmer also said the government was talking to international partners about how to reduce the economic impact from the conflict, which Britain wanted to de-escalate.

Britain’s economy is particularly exposed to the ⁠price of gas.

When energy prices spiralled after Russia’s 2022 full-scale invasion of Ukraine, the then Conservative government was forced to spend more than 40 billion pounds ($53 billion) to protect businesses and households from the ​impact.

Gas prices have more than doubled since the U.S. and Israel struck Iran, and Tehran ​hit its Gulf neighbors, limiting the production and transport of oil and gas in the region.

Starmer said Britain’s system of capping energy tariffs would limit ⁠any sharp ‌price rises ‌for households until July.

A leading economist said rising energy ⁠bills, if maintained, would hit economic growth and could ‌force Treasury chief Rachel Reeves to borrow more if the government also has to hike defense ​spending again.

“That’s one of the reasons ⁠markets are concerned and why we’re paying more for our ⁠borrowing,” Paul Johnson, a former director of the Institute for Fiscal Studies, told Times ⁠Radio.

Starmer said on Monday ​that the economy was more resilient than during the last energy shock in 2022.

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The Turkish central bank is widely expected to keep its interest rates steady at the upcoming policy meeting on Thursday in response to the tense geopolitical situation and global market fallout, recent polls showed.

The Central Bank of the Republic of Türkiye (CBRT) would thus halt its easing cycle and hold interest rates at 37%, most economists polled by Anadolu Agency (AA) and Reuters anticipate.

All 10 economists polled by Reuters forecast that the bank ‌will hold the benchmark rate on March 12. Similarly, a vast majority of economists in a poll by AA also expected that the CBRT would hold rates steady, with only one forecasting a small 50-basis-point cut.

Before the expanding regional conflict began shifting market expectations, the bank had previously been expected to continue an easing cycle that began in late 2024.

A year ago, the central ​bank temporarily reversed course and hiked rates, though it returned to rate cuts by mid-2025.

This week’s shift in ⁠market expectations also led to an upward revision in year-end rate forecasts. The median estimate for end-2026 ​now stands at 29.75%, compared with 28% in the previous Reuters poll, while some economists declined to make ​predictions for now.

JPMorgan, which, like most analysts, had previously predicted a cut at the March meeting, said on Monday it now expects the bank to hold and also revised its year-end forecast to 31% from 30%.

HSBC also forecast ​a hold, noting the Monetary Policy Meeting (MPC) has repeatedly said the easing cycle will be cautious and data‑dependent.

“We ​think that in the context of significant geopolitical uncertainty and growing energy price risks, an on‑hold decision is the ‌most ⁠likely outcome,” HSBC said in a research note.

Türkiye’s inflation rate rose slightly on an annual basis to 31.5% in February, while the monthly figure cooled to 2.96%, compared to the higher-than-expected 4.84% increase in January, official data revealed earlier this month.

The central bank, at its first quarterly inflation report last month, lifted its year-end inflation forecast to the 15%-21% range, while keeping its interim target at 16%.

CBRT Governor Fatih Karahan, at the time, emphasized progress on disinflation and suggested that policymakers “are decisively maintaining our tight monetary policy stance to ensure the continuation of the disinflation process in line with targets.”

“We stand ready to tighten our monetary policy stance in case of a significant deviation in the inflation outlook from the interim targets,” he also said.

Oil prices

However, since the U.S.-Israel attack on Iran and its retaliatory aerial attacks, exports from major Gulf oil producers have largely halted, causing a sharp rise in energy prices and stoking supply and inflation concerns on a global scale.

Market volatility triggered by the conflict prompted Treasury and Finance Minister Mehmet Şimşek to convene the Financial Stability ​Committee, which said it ​would take all necessary ⁠steps to ensure market functioning and contain the fallout.

Turkish institutions have meanwhile issued temporary proactive measures, including liquidity steps that helped push the overnight rate roughly 300 basis ​points higher to ⁠about 40%.

At the same time, Ankara on Thursday announced that the so-called “sliding scale system” was temporarily activated to mitigate the impact of the perceived temporary increase in oil prices.

Economists said that one key factor limiting upward revisions in ⁠inflation expectations ​was this system, which adjusts the special consumption tax (ÖTV) ​on fuel products and prevents higher oil prices from being fully passed through to consumers.

The central bank will announce its ​next interest rate decision at 11 a.m. GMT (2 p.m. local time) on March 12.

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The European Union’s newly unveiled “Made in EU” requirement is expected to strengthen and solidify Türkiye’s strategic position in European production and supply chains, particularly in its vital auto and steel industries, according to sector representatives.

The Made in EU requirement prioritizes European countries in public procurement to boost domestic production.

Any country with existing trade deals with the bloc will be allowed under the requirement, EU Commission Vice President Stephane Sejourne, who is responsible for the EU Commission for Prosperity and Industrial Energy, said at a press conference in Brussels, while detailing the initiative.

The EU Commission proposed the “Industrial Accelerator Act” (IAA) on Wednesday to strengthen European industries, introducing the Made in EU scheme.

Türkiye is expected to be considered under the framework of the customs union.

Trade Minister Ömer Bolat praised the development on Wednesday, saying in a post on the Turkish social media platform NSosyal that confirming the legal basis for Türkiye’s inclusion marks a critical step in bilateral trade relations.

Türkiye’s inclusion in the Made in EU requirement is expected to avert the significant risk of facing new customs duties that could otherwise undermine the country’s competitiveness, especially in the auto sector, despite the customs union.

Baran Çelik, chair of the Uludağ Automotive Industry Exporters’ Association (UIB), told Anadolu Agency (AA) that an exclusionary policy would have harmed both Turkish manufacturers and the deeply integrated European auto ecosystem.

He noted that the move will elevate the Turkish auto industry from a production center to a comprehensive ecosystem partner.

“Türkiye’s inclusion will also ensure the uninterrupted flow of our exports to the EU and strengthen our position in the EU’s strategy to reduce its dependence on China, while empowering our domestic supply industry to directly benefit from green transformation funds and research and development incentives the EU provides,” he said.

Çelik mentioned that the EU is expected to take a tougher stance in some areas and demand strict reciprocity, meaning the process ahead will bring new obligations requiring close monitoring.

Meanwhile, the Turkish steel sector is also expected to see long-term strategic benefits from the Made in EU classification.

Veysel Yayan, the secretary-general of the Turkish Steel Producers’ Association (TSPA), said that the Turkish steel sector already operates in line with EU standards in production processes, quality standards, and technical regulations.

“This classification could create an opportunity for Turkish steel when we look at the market gaps that may arise if other exporters are not included in the Made in EU scheme,” he said.

Yayan said the Turkish steel industry expects to be formally accepted as an integral part of the European value chain “to achieve a stronger and more sustainable position in the European market.”

“Türkiye’s geographical proximity, robust production capacity, and production infrastructure compatible with EU standards could further empower Turkish steel, elevating the sector to a reliable and competitive supplier for the European industry,” he said.

He added that green transformation is not included in the Made in EU requirement yet, but with its inclusion, “Turkish steel may accelerate its efforts in the field and invest more in decarbonization,” which would deepen its alignment with Europe’s climate policies.

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As missiles and drones limit energy production across the Persian Gulf amid the ongoing U.S.-Israel-Iran war, analysts warn that water, not oil, could be the resource most at risk in the energy-rich but arid region.

Hundreds of desalination plants sit along the Persian Gulf coast, putting individual systems that supply water to millions within range of Iranian missile or drone strikes. Without them, major cities would not be able to sustain their current populations.

In Kuwait, about 90% of drinking water comes from desalination, along with roughly 86% in Oman and about 70% in Saudi Arabia.

The technology removes salt from seawater, most commonly by pushing it through ultra-fine membranes in a process known as reverse osmosis, to produce the freshwater that sustains cities, hotels, industry and some agriculture across one of the world’s driest regions.

For people living outside the Middle East, the main concern of the Iran war has been the impact on energy prices. The Gulf produces about a third of the world’s crude exports and energy revenues underpin national economies.

Fighting has already halted tanker traffic through key shipping routes and disrupted port activity, forcing some producers to curb exports as storage tanks fill.

But the infrastructure that keeps Gulf cities supplied with drinking water may be equally vulnerable.

“Everyone thinks of Saudi Arabia and their neighbors as petrostates. But I call them saltwater kingdoms. They’re manmade fossil-fueled water superpowers,” said Michael Christopher Low, director of the Middle East Center at the University of Utah. “It’s both a monumental achievement of the 20th century and a certain kind of vulnerability.”

The war that began Feb. 28 with U.S. and Israeli attacks on Iran has already brought fighting close to key desalination infrastructure. On March 2, Iranian strikes on Dubai’s Jebel Ali port landed some 12 miles from one of the world’s largest desalination plants, which produces much of the city’s drinking water.

Damage also was reported at the Fujairah F1 power and water complex in the United Arab Emirates (UAE), and at Kuwait’s Doha West desalination plant. The damage at the two facilities appeared to have resulted from nearby port attacks or debris from intercepted drones, and so far there is little evidence of Iran intentionally targeting water treatment sites, experts said.

Many Gulf desalination plants are physically integrated with power stations as co‑generation facilities, meaning attacks on electrical infrastructure could also hinder water production.

Even where plants are connected to national grids with backup supply routes, disruptions can cascade across interconnected systems, said David Michel, senior fellow for water security at the Center for Strategic and International Studies.

“It’s an asymmetrical tactic,” he said.

“Iran doesn’t have the same capacity to strike back at the United States and Israel. But it does have this possibility to impose costs on the Gulf countries to push them to intervene or call for a cessation of hostilities.”

Desalination plants’ importance, vulnerability

Desalination plants have multiple stages – intake systems, treatment facilities, energy supplies – and damage to any part of that chain can interrupt production, according to Ed Cullinane, Middle East editor at Global Water Intelligence, a publisher serving the water industry.

“None of these assets are any more protected than any of the municipal areas that are currently being hit by ballistic missiles or drones,” Cullinane said.

Gulf governments and U.S. officials have long recognized the risks these systems pose for regional stability: if major desalination plants were knocked offline, some cities could lose most of their drinking water within days. A 2010 CIA analysis warned attacks on desalination facilities could trigger national crises in several Gulf states, and prolonged outages could last months if critical equipment were destroyed.

More than 90% of the Gulf’s desalinated water comes from just 56 plants, the report stated, and “each of these critical plants is extremely vulnerable to sabotage or military action.”

A leaked 2008 U.S. diplomatic cable warned the Saudi capital of Riyadh “would have to evacuate within a week” if either the Jubail desalination plant on the Gulf coast or its pipelines or associated power infrastructure were seriously damaged.

Saudi Arabia has since invested in pipeline networks, storage reservoirs and other redundancies designed to cushion short-term disruptions, as has the UAE. But smaller states such as Bahrain, Qatar and Kuwait have fewer backup supplies.

As warming oceans increase the likelihood and intensity of cyclones in the Arabian Sea and raise the chances of landfall on the Arabian Peninsula, storm surge and extreme rainfall could overwhelm drainage systems and damage coastal desalination.

The plants themselves contribute to the problem. Desalination is energy-intensive, with plants worldwide producing between 500 and 850 million tons of carbon emissions annually, approaching the roughly 880 million tons emitted by the entire global aviation industry.

The by-product of desalination, highly concentrated brine, is typically discharged back into the ocean, where it can harm seafloor habitats and coral reefs, while intake systems can trap and kill fish larvae, plankton and other organisms at the base of the marine food web.

As climate change intensifies droughts, disrupts rainfall patterns and fuels wildfires, desalination is expected to expand in many parts of the world.

Destruction in past conflicts

During Iraq’s 1990-1991 invasion of Kuwait and the subsequent Gulf War, Iraqi forces sabotaged power stations and desalination facilities as they retreated, said the University of Utah’s Low. At the same time, millions of barrels of crude oil were deliberately released into the Persian Gulf, creating one of the largest oil spills in history.

The massive slick threatened to contaminate seawater intake pipes used by desalination plants across the region. Workers rushed to deploy protective booms around the intake valves of major facilities.

The destruction left Kuwait largely without fresh water and dependent on emergency water imports. Full recovery took years.

More recently, Yemen’s Houthi rebels have targeted Saudi desalination facilities amid regional tensions.

The incidents underscore a broader erosion of long-standing norms against attacking civilian infrastructure, Michel said, noting conflicts in Ukraine, Gaza and Iraq.

International humanitarian law, including provisions of the Geneva Conventions, prohibit targeting civilian infrastructure indispensable to the survival of the population, including drinking water facilities.

The potential for harmful cyberattacks on water infrastructure is a growing concern. In 2023 and 2024, U.S. officials blamed Iran-aligned groups for hacking into several American water utilities.

After a fifth year of extreme drought, water levels in Tehran’s five reservoirs plunged to some 10% of their capacity, prompting President Masoud Pezeshkian to warn the capital may have to be evacuated.

Unlike many Gulf states that rely heavily on desalination, Iran still gets most of its water from rivers, reservoirs and depleted underground aquifers. The country operates a relatively small number of desalination plants, supplying only a fraction of national demand.

Iran is racing to expand desalination along its southern coast and pump some of the water inland, but infrastructure constraints, energy costs and international sanctions have sharply limited scalability.

“They were already thinking of evacuating the capital last summer,” Cullinane of Global Water Intelligence said. “I don’t dare to wonder what it’s going to be like this summer under sustained fire, with an ongoing economic catastrophe and a serious water crisis.”